In a perfect market without other frictions,insurance companies should compete until they are just earning a fair return and the NPV from selling insurance is ________.

Question

Quizplus · Accepted Answer

In a perfect market without other frictions, insurance companies should compete until they are just earning a fair return, which implies that the NPV from selling insurance is zero. This is because a fair return implies that the revenue earned from selling insurance products is just enough to cover the cost of providing those products, leaving no residual value or profit. Therefore, the correct answer is D - NPV from selling insurance is zero.

In a Perfect Market Without Other Frictions,insurance Companies Should Compete