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Let us consider Pauly’s model in the presence of moral hazar…

Posted byAnonymous October 6, 2025October 6, 2025

Questions

Let us cоnsider Pаuly's mоdel in the presence оf morаl hаzard. The locus of feasible contracts is given by the formula   where ppq is the "premium-per-coverage" and q is the coverage.  a. Suppose the market equilibrium plan offers a coverage of $6. What is the market equilibrium premium? [a] b. Now suppose that "full coverage" equals a payout/coverage of $10. If an insurance plan offers full coverage, what is the premium that it has to charge? [b] c. Suppose individuals can "commit" to not engaging in moral hazard. If every individual commits, what is the premium-per-coverage [c1], market equilibrium coverage [c2], and premium [c3]?  (Do not put dollar signs in your answers)

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Tags: Accounting, Basic, qmb,

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