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Title: Why does the assumption of independence of risks matter in the examples of insurance? What would happen to premiums if t

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Chapter 11 

Why does the assumption of independence of risks matter in the examples of insurance? What would happen to premiums if the probabilities of houses burning were positively correlated?  Can you think of a situation where they might be negatively correlated? Small firms can discover the abilities of their workers more quickly than large ones because they can observe the workers more closely at a variety of tasks.  Does it then make sense for people with high abilities to go to small firms?  Give some reasons why and some reasons why not.

Chapter 12 

In some ways monitoring is easier in a partnership than a corporation, where shareholders monitor directors.  In what ways is monitoring easier? In what ways is it not? A friend convinces you that she has a great idea for a business, and the two of you incorporate.  You supply her with funds and let her make all the executive decisions. Under the agreement you hold 30 percent of the firm’s stock and your friend holds 70 percent.  Why should you ever out yourself into a position where your friend’s decision will carry the day, whether you agree with her or not?  What does this tell you about problems that allegedly stem from separation of ownership and control?

 

 


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Title: Why does the assumption of independence of risks matter in the examples of insurance? What would happen to premiums if t

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    • Posted Date: May 19, 2012 at 11:57:13 PM

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... Questions and Problems: 1 and 14   1. Why does the assumption of independence of risks matte...

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