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Landlord's Risk Mitigation Strategy
A landlord is renting out a fully furnished apartment. They cannot continuously monitor how the tenant uses the furniture and appliances. The landlord anticipates that the tenant, not being the owner, might not exercise the same level of care, which increases the likelihood of damage. Describe one specific provision the landlord is likely to include in the rental contract to address this situation, and explain the economic reasoning behind it.
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CORE Econ
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Economy
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Landlord's Risk Mitigation Strategy
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An insurance company offers a comprehensive travel policy that covers lost luggage. The company cannot observe the level of care each traveler takes with their belongings after purchasing the policy. The company anticipates that, on average, insured travelers will be slightly less vigilant than uninsured travelers, leading to a higher probability of claims. Given this unobservable behavior, which of the following best explains the company's most likely pricing strategy?