"Screening" means that an auto insurance company is
A) enforcing a pooling equilibrium.
B) ignoring all private information.
C) creating an incentive to eliminate moral hazard even though it reinforces the possibility of adverse selection.
D) creating an incentive to eliminate adverse selection even though it reinforces the possibility of moral hazard.
E) creating an incentive for a risky driver to reveal that he or she is risky.

Question

Quizplus · Accepted Answer

Screening in the context of auto insurance involves the insurance company setting up mechanisms or incentives that encourage individuals to reveal their true risk levels. For example, offering different insurance packages based on driving history or the choice of car can lead drivers to self-select into categories that reflect their actual risk, thereby revealing if they are risky drivers. This helps the insurance company to more accurately price premiums according to the risk level of the insured.

"Screening" Means That an Auto Insurance Company Is