Consider Table 10.1, which has data on insurance status and medical expenditures for different types of professors at Adverse Selection University (ASU). In 2014, every employee of ASU was offered a full insurance contract at no premium. In 2015, ASU charged any employee who wanted to keep health insurance a $4,000 premium. As a result, all history professors dropped their coverage in 2015. Assume that the underlying health of ASU professors did not change much from year to year. Table 10.1: Information from the human resources department at ASU 2014 2015 Insured? Average Expenditures Insured? Average Expenditures Economics Professors Yes $5,000 Yes $5,000 History Professors Yes $3,000 No $2,000 Is there evidence of moral hazard in this market? How do you know? Is there evidence of adverse selection in this market? How do you know?
Consider Table 10.1, which has data on insurance status and medical expenditures for different types of professors at Adverse Selection University (ASU). In 2014, every employee of ASU was offered a full insurance contract at no premium. In 2015, ASU charged any employee who wanted to keep health insurance a $4,000 premium. As a result, all history professors dropped their coverage in 2015. Assume that the underlying health of ASU professors did not change much from year to year. Table 10.1: Information from the human resources department at ASU 2014 2015 Insured? Average Expenditures Insured? Average Expenditures Economics Professors Yes $5,000 Yes $5,000 History Professors Yes $3,000 No $2,000 Is there evidence of moral hazard in this market? How do you know? Is there evidence of adverse selection in this market? How do you know?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider Table 10.1, which has data on insurance status and medical expenditures for different types of professors at Adverse Selection University (ASU). In 2014, every employee of ASU was offered a full insurance contract at no premium. In 2015, ASU charged any employee who wanted to keep health insurance a $4,000 premium. As a result, all history professors dropped their coverage in 2015. Assume that the underlying health of ASU professors did not change much from year to year.
|
Table 10.1: Information from the human resources department at ASU
|
||||
|
|
2014 |
2015 |
||
|
|
Insured? |
Average Expenditures |
Insured? |
Average Expenditures |
|
Economics Professors |
Yes |
$5,000 |
Yes |
$5,000 |
|
History Professors |
Yes |
$3,000 |
No |
$2,000 |
- Is there evidence of moral hazard in this market? How do you know?
- Is there evidence of adverse selection in this market? How do you know?
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