Insurance policies typically stipulate a deductible amount which the insured must shoulder; this is to address the problem of:
A) Adverse selection
B) Externalities
C) Moral hazard
D) Public goods

Question

Quizplus · Accepted Answer

The use of a deductible in insurance policies is meant to combat the problem of moral hazard, which occurs when the presence of insurance causes an increase in risky behavior by the insured party because they no longer have to bear the full cost of any loss. The deductible requires the insured to share in the cost of the loss, thereby discouraging them from taking excessive risks. Adverse selection, externalities, and public goods are all different types of market failures that are typically addressed through other means.

Insurance Policies Typically Stipulate a Deductible Amount Which the Insured