Microeconomics › Section P · Information, risk, and insurance › Topic P.2
Insurance, adverse selection, and moral hazard
Insurance turns a large, uncertain loss into a small, certain payment by pooling risks. But the insurer never knows its customers as well as they know themselves, and two information problems, adverse selection and moral hazard, shape almost every feature of real insurance policies.
In this topic
- How insurance works
- Worked example: setting a premium
- Risk groups and actuarial fairness
- Moral hazard
- Cost sharing
- Worked example: who pays the bill?
- Providers and moral hazard
- Adverse selection in insurance
- Worked example: a death spiral
- Fixes for adverse selection
- Common mistakes to avoid
- Key takeaways
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