In the market for insurance, the moral hazard problem leads:

Question

Quizplus · Accepted Answer

The moral hazard problem in insurance occurs when the insured party takes more risks or is less cautious because they know they are protected by insurance. This means that those who buy insurance are more likely to take fewer precautions to avoid the risk, leading to an increase in claims and premiums. Option A is incorrect because it is rational for those most likely to collect on insurance to purchase it. Option C is incorrect because those with less insurance will likely take on less risk, not more. Option D is incorrect because the moral hazard problem is a well-known issue in the insurance market.

In the Market for Insurance, the Moral Hazard Problem Leads