In an efficient allocation of risk:
A)all risk is eliminated.
B)those who are most willing to bear risk,bear it.
C)all risk is diversified.
D)all insurance premiums are equal to the expected value of the claims.

Question

Quizplus · Accepted Answer

In an efficient allocation of risk, those who are most willing to bear risk should bear it. This leads to the greatest overall satisfaction and minimizes the costs associated with transferring risk, such as insurance premiums. Eliminating all risk or diversifying all risk may not be practical or efficient, and insurance premiums may not always be equal to the expected value of claims as factors such as administrative costs and profit margin also play a role.

In an Efficient Allocation of Risk