7. Asymmetric information Flashcards
Mitigating risk
* What is risk-sharing?
* What is risk -pooling?
* Why do people buy insurance?
State contigent income space with a lottery
What are the points on the indifference curve on a state contigent income space?
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Gradient of indifference curve
MRS
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Risk premium
* Certainity equivalent
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What is the significance of Insurance
What happens to position when she buys insurance?
- With the addition of a budget constraint
- What is the gradient of a budget constraint?
Partial insurance diagram
Full insurance
What is the relationship between the price and the probability of loss and why
What is the MRS equation?
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What is the lottery for the person buying insurance and the insurance firm?
What are the profits for the insurance firms?
How do we measure the concentration in the UK insurance market?
What is the indicator used to measure the variability of profits?
What is the indicator used to measure the variability of profits?
What determines the competiitveness of the insurance market?
* Increase in concentration
* Scale and diversification of risk
* Many competitors
* Fierce competition for new business
* Price walking
State provided assurance
Possible issues with the insurance market
* Credit constraints
* Non-diversifiable risk cannot be insured
* Adverse Selection
* Moral Hazard
* Behavioural factors
The work of Rothschild and Stiglitz
What is the state contingent graphs?
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