Unobservable Effort and Insured Outcomes in Home Price Insurance
The moral hazard in home price insurance stems from an information asymmetry regarding the homeowner's effort. The homeowner's maintenance activities (the hidden action) are difficult for the insurer to monitor. The insurance contract is based on the final property value (the outcome), which is influenced by both the homeowner's effort and broader market forces. Because the insurance decouples the homeowner's financial outcome from their maintenance effort, it creates an incentive to reduce that effort.
0
1
Tags
Economics
Economy
The Economy 2.0 Microeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Related
Neglected Maintenance Due to Home Price Insurance
Unobservable Effort and Insured Outcomes in Home Price Insurance
Reduced Contribution to Neighborhood Upkeep due to Home Price Insurance
Comparison of Moral Hazard and Adverse Selection in Home Price Insurance
Index-Based Home Price Insurance as a Solution to Moral Hazard