Ch 11 - Insurance Flashcards
1
Q
What are 4 instruments households could use to buffer income shocks and reduce consumption volatility?
A
Borrow from various sources
Use savings as a buffer for income shocks
Engage in arrangements with other agents and insure against negative shocks
Diversifying sources of income
2
Q
What are the 2 types of insurace?
A
Formal, informal
3
Q
Consumption is much ____ volatile than income
A
Less
4
Q
Risk averse individuals have a _____ utility curve
A
Concave
5
Q
What are some limits to insurance?
A
Limited information Limited enforcement Aggregate risk High price sensitivity Insurance companies may not be trusted Gov relief programs may reduce the demand for insurance
6
Q
Limited info may lead to ……
A
Outright fraud, moral hazard, adverse selection
7
Q
What are 2 remedies for the problem of moral hazard?
A
Co-insurance/co-payment, deductibles
