Financial Markets and Institutions (2-downloads)

1. Give one example each of moral hazard and adverse

selection in private insurance arrangements.

2. If casualty insurance companies provided fire insur-

ance without any restrictions, what kind of adverse

selection and moral hazard problems might result?

3. What bank regulation is designed to reduce adverse

selection problems for deposit insurance? Will it

always work?

4. What bank regulations are designed to reduce moral

hazard problems created by deposit insurance? Will

they completely eliminate the moral hazard problem?