Moral Hazard and the Insurance Market

Motallebi, Syed Mohammad Musa

Moral Hazard and the Insurance Market

Document Type : Original Article

Author

Syed Mohammad Musa Motallebi

Master of Economics, Mofid University

Abstract

In a condition where two parties establish an economic relation, information always plays an important role. Any subtle behaviour may cause either party to react in away that is not in the interest of the other. In sach a case moral hazard occurs which leads to market failure. Insurance companies that can't observe the supervisory behaviour of the insured people face such a problem, 'I hus there is a need for designing contracts which involve the insureds and motivate them to increase their supervision. Franchise contracts are considered to be the optimal ones. The market failure can be prevented or the cast can be reduced by franchinsing and the deductible coverage or by government's stimulative intervention through tax and subsidies. Investigations indicate that some tariffs levied by the "Insurance High Council" and also the contract documents lack the due efficiency.. It's necessary to reform the contracts and the tariffs using the results drawn from this and other researches.

Keywords

In a condition where two parties establish an economic relation

information always plays an important role. Any subtle behaviour may cause either party to react in away that is not in the interest of the other. In sach a case moral hazard occurs which leads to market failure. Insurance companies that can't obser

'I hus there is a need for designing contracts which involve the insureds and motivate them to increase their supervision. Franchise contracts are considered to be the optimal ones. The market failure can be prevented or the cast can be reduced by f

منابع

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