Jason buys automobile insurance from No Wreck Insurance Company.If Jason avoids having an accident for three years,No Wreck will reduce the price he has to pay for his insurance.Nevertheless,he routinely drives fast and with reckless abandon.

Question

Quizplus · Accepted Answer

The situation described is an example of moral hazard, where Jason's behavior changes once he is insured, leading to increased risk of accident. This is typically addressed through measures such as deductibles or higher premiums for riskier behavior. There is no indication that government intervention is needed, and while No Wreck may be acting as an agent for Jason, this is not a major focus of the situation. It is also possible for No Wreck to gather information on Jason's driving habits through monitoring or other means, though the specifics are not addressed in the scenario.

Jason Buys Automobile Insurance from No Wreck Insurance Company