Insurance market is characterized by failures that impose particular negative consequences; given the failures, different remedies may improve the market outcome. On one hand, the insurance market is characterized by asym- metric information, i.e. moral hazard and adverse selection, and to correct the conse- quent severe market failures, monitoring and risk classification can be implemented. On the other hand, the insolvency issue: given the enormous amounts of funds in the hands of insurance companies, their default would have an extreme impact, and regulation is nec- essary to guarantee the payback for policyholders and beneficiaries.
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