...Running Head: ADVERSE SELECTION What Is Adverse Selection Adverse Selection Adverse selection can be defined as unfavorable conditions which arise as a result of persons with expected loss which exceed the calculated average of the population select an insurance plan (HealthInsurance.Info, 2010). In such a scenario the insurer loses money so insurers are forced to raise premiums. Normally premiums are factored based on the average expected utility (usage) of both high and low risk individuals and is thus shared (Feldstein, 2012). To counter adverse selection, insurers institute preferred risk selection which gives them the ability to weed out high risk persons. One such selection measure is to add pre-existing conditions clauses to the policy that prevents or excludes coverage for certain conditions for a specified period of time. Adverse selection and the demand for healthcare create a moral hazard which stems from the fact that people will demand less healthcare services based on the elasticity of their demand curve thus the more insurance pays the more people will use it and the more they have to pay the less they will exploit (Schenk, n.d.). This creates an inefficient use of resources. Options for changing this dilemma include a reduction of physician incentives to providing fee based services and increased patient cost sharing Feldstein, 2012). The greater success an insurer...
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...Theme: There is always going to be information asymmetry between the investors in the public markets and the management inside the company because if everything were out in public, the firm would lose all competitive advantages. To combat this, full and timely disclosure will reduce the adverse selection problem so that markets work better, but adverse selection will never fully disappear. Insights: The fundamental value of a firm will always be larger than the efficient market price of a firm because there is a layer of inside information between the two values. The purpose of financial reporting is to make the publicly available information about the firm increase in order to shrink the gap between the two values. The possibility of adverse selection, insiders profiting off of their insider information at the disadvantage of outside investors, creates estimation risk for investors so they will effectively raise the cost of capital for the firm in order to compensate for this estimation risk. Since the reporting of all inside information is too costly compared to its benefits, the problem of adverse selection will continue to be present. In discussion about full disclosure, we should treat regulation like a “stick” and requires penalties to enforce it. However, the need for regulation will be reduced to the extent that “carrots”, like increased share price and lower cost of capital, begin to motivate full disclosure. These carrot and stick concepts are played out in the...
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...perfectly competitive. | | C. if labor unions are strong. | | D. when a country is expanding. | | | | | * Question 4 0 out of 10 points | | | A project pays $125 with a probability of 0.75 or pays $90. What is the expected value of this project? | | | | | Selected Answer: | [None Given] | Answers: | A. $116.25 | | B. $93.75 | | C. $98.75 | | D. $161.25 | | | | | * Question 5 0 out of 10 points | | | In a home mortgage, the house serves as: | | | | | Selected Answer: | [None Given] | Answers: | A. bank capital. | | B. a bank's real asset. | | C. a down payment. | | D. collateral. | | | | | * Question 6 0 out of 10 points | | | According to the adverse...
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...000) + (0.1*0) = 490,000 + 80,000 = $570,000 You should enter Singapore’s market due to their highest expected sales compared to Malaysia and the Philippines. Total Revenue = 10*570,000 = $5,700,000 Total Cost = 250,000 + (8*570,000) = 250,000 + 4,560,000 = $4,810,000 Expected profit = 5,700,000 – 4,810,000 = $890,000 17.2 Game Show Uncertainty: E = (2,000,000*.50) + (500,000*.50) = $1,250,000 If the person doesn’t play, he goes back with $1,000,000. Since the expected earning is more if he continues to play, he should make an attempt to guess since he’s got a 50% chance of doubling his winnings. 19.3 Bicycle Insurance and Information Asymmetry: Yes, there will be an adverse selection problem. Depending on the theft rate of the area that the consumer lives in, the individual selling the bicycle theft insurance should be able to determine whether or not a high- or low-risk rate should be charged. 20.3 Locator Beacons for Lost Hikers: With the locator beacons being made available to hikers, this would definitely cut costs that the Forest Service incurs in terms of overhead and gas resources needed to locate lost...
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...Agency costs in corporate governance The information asymmetry that exists between shareholders and the Chief Executive Officer is generally considered to be a classic example of a principal–agent problem. The agent (the manager) is working on behalf of the principal (the shareholders), who does not observe the actions, or many of the actions, or is not aware of the repercussions of many of the actions of the agent. Most importantly, even if there was no asymmetric information, the design of the manager's contract would be crucial in order to maintain the relationship between their actions and the interests of shareholders. Information asymmetry contributes to moral hazard and adverse selection problems. Agency costs mainly arise due to contracting costs and the divergence of control, separation of ownership and control and the different objectives (rather than shareholder maximization) the managers. Professor Michael Jensen of the Harvard Business School and the late Professor William Meckling of the Simon School of Business, University of Rochester wrote an influential paper in 1976 titled "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure".[3] Professor Jensen also wrote an important paper with Eugene Fama of University of Chicago titled "Agency Problems and Residual Claims".[4] There are various actors in the field and various objectives that can incur costly correctional behaviour. The various actors are mentioned and their objectives...
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...Microeconomics Dana Ponomarenko Homework #5 1. It is probably practiced already; however, I believe it is rational to sell innovations on auctions. I cannot think of any specific product, as it can be any – new watch, new “super functional” table, or robot. There are companies that produce technologies like electronic devices; there are companies produce furniture, and are clothe producers. All sellers work on new, updated, improved technology and quality. Before brand new product is sold in mass markets it should be tested so that the producers know what price people are ready to pay, how desirable product is, plus they can get the feedback. If we consider, for example, robots that are nowadays developed so they can move as humans, speak, and perform useful functions. Even though they are not yet produced for mass market, there are people who work hard on developing and building them. Having spare money, it is rational to spend it for experimental use, entertainment or any other need, thus motivating and helping scientists to work further for future progress. In this situation both benefit. Scientists would get funding, see the demand level, and feedback from ordinary people. Buyer will have latest innovation that might be useful performing some work. 2. Buying travels at tourism companies in an example of asymmetric information. For example, you buy 10 days tour. You can get description of a hotel, excursions and services for a certain price; however, in practice services...
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...Nash equilibrium = a pair of strategies (strategy is a best response against the other) When players act rationally, optimally, and in their own self-interest, it’s possible to compute the likely outcomes (equilibria) of G. By studying G, we learn: Strategies are likely to take us and how to modify the rules of the game to our own advantage. SEQUENTIAL G (players take turns moving) are influenced by who moves first (a potential first-mover advantage, or disadvantage), and who can commit to a future course of action. Credible commitments (threats) are difficult to make because they require players to commit to a course of action against their self-interest. Thus, the best threat is one you never have to use. SIMULTANEOUS-move G, players move at the same time. In the prisoners’ dilemma, convict and cooperation are in tension—self-interest leads to outcomes that reduce both players’ payoffs. Cooperation can improve both players’ payoffs. Rules of thumb: • Be nice: No rest strikes. • Be easily provoked: Respond immediately to rivals. • Be forgiving: Don’t try to punish competitors too much. • Don’t be envious: Focus on your own slice of the port pie, not on your competitor’s. • Be clear: Make sure your competitors can easily interpret your actions. Strategic: model as either a simultaneous-move or sequential-move game. Focusing on how the outcome of bargaining games depends on who moves first and who can commit to a bargaining position, as well as whether...
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...Insurance: Adverse Selection, Welfare Loss, and the Key to Vanquishing Market Distortion In today’s society, even more than ever before, information is key. With the introduction of such modern marvels as Twitter, mobile notification alerts, and around the clock news coverage, the next generation can be defined as though who want information accessible at all times. Most believe that this accessibility of information is much more efficient, and leads to better outcomes and greater utility for the individual. On the contrary, in the colonial times, information was scarce and often times inaccurate. This caused more frustration, less utility, and poorer outcomes. The accessibility issue of general information has undergone vast improvement over time, but in health insurance markets, information asymmetry has continued to plague the system. This asymmetry causes what is known as adverse selection, in which the market suffers from the “adverse” outcome of only having high risk, costly individuals in the market, as opposed to the lower-risk individuals who could also benefit from insurance. Adverse selection strongly decreases consumer welfare, and leads to an inefficient outcome in which market failure persists in what is known as the adverse selection death spiral. However, in order to solve adversely selected markets, it is imperative that the system allows for the collection of better information (and revert to market equilibrium conditions) to lessen adverse selection in the...
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...How Adverse Selection and Agency Problems can Effect the Investors Reaction Abstract Adverse Selection and agency problems are the major areas of Concern for both, the investors, and the corporate governance. Company’s good corporate structure can have a positive impact On investors. Our study, with the support of previous studies, tries to prove that the investors are also concerned about the adverse Section and agency problems. This study lacks evidences from the previous researchers regarding the relationship between investor’s reaction and adverse selection and agency problems. Even then it is a good attempt to study the behavior of investors towards investing in the company where the problems of adverse selection and agency problems are present. Key Words: Investors Reaction, Adverse Selection, Agency Problems, Corporate Governance Introduction: This paper describes the reactions of the investors to the corporate governance issues with an emphasis on the situation of agency problems and adverse selection. This paper adds to the existing literature of how investor reacts to different corporate governance issues. The idea is that how adverse selection and agency problems can directly or indirectly affect the investors thinking. Corporate governance has an influence on the investor’s reaction .Many corporate governance issues like board size, outside directors, CEO tenure and other such issues have the impact on investor’s reaction. Investors...
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...Decisions of Uncertainty Introduction The Decision What is the probability of hiring a qualified employee upon selecting one from 52 applicants 26 are male and 26 are female? Probability Concepts The probability of the event –hiring a qualified male employee—is the proportion of times the company would expect to obtain a qualified male employee over the long run if the HR managers selected applicants many times. I will refer to each repetition of the situation – in this case the selection of a qualified male future employee—as a sampling experiment. The probability of the event is the proportion of times we would expect the event to occur in an infinitely long series of identical sampling experiments. The Outcome In this case, the probability of selecting a qualified male employee is 0 .50 or 50%. I arrived at this conclusion by using the knowledge that there are 52 applicants who areapplying for the open position, 26 are female and 26 are male. If the company assume that each of the 52 possibilities is equally likely, it is reasonable to expect that the company would select a male applicant that is qualified for the open position 0.50 of the time of a period of time ( 26/52 = ½ = 0.50 ). This illustrates the basic rule for obtaining probabilities in situations in which each of the possible outcomes is equally likely, the probability of the occurrence of an event is equal to the proportion of the possible outcomes characterized by the event. In the case of...
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...Task 1 of 2 Create a Universal Group called Replication Management Admins in an OU you’ve chosen to hold groups for delegated access or other security related task. Open ADSI Edit and connect to the Configuration Naming Context as seen in the image below. Once you've selected Configuration in "Select a well known Naming Context", click OK Expand the Configuration Naming context and right click the Naming Context node below it. See the picture below for the arrow indicating where you should right-click. Next Click Properties Click the Security Tab Click the Advanced button Click Add Enter the name of the Universal Group you created in Step 1 and click OK In the Permission Entry for Configuration box scroll to the bottom and tic the Allow box for the Replication Synchronization permission. Ensure that "This object and all child objects" is selected for the Apply to and click OK Click Apply, then OK, and then click OK once more and you should be back to ADSI Edit with no open dialog boxes. Task 2 of 2 After you’ve completed steps 1-10 in Task 1 you'll need to view all the replicated partitions and do the same process for each partition. Click on CN=Partitions under CN=Configuration, DC= to view the partitions in the Configuration naming context. On each partition right click each object and select New Connection to Naming Context. Note: You don't have to do this for...
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...risks due to potential loss of funding” (Wager, Lee, & Glaser, 2009, para. 9). Implementing a new software system will benefit the Mobile Mammography Van greatly. This paper is intended to identify the process for selecting and acquiring an information system, explain how the organizations goals drive the selection process, and identify the roles each organization’s stakeholders play in the selection process. Selecting and Acquiring an Information System When an organization is selecting and acquiring a new information system there is a great deal of planning and steps they must take to implement the system properly. The first step is to establish a project steering committee. “This committee’s primary function is to plan, organize, coordinate, and manage all aspects of the acquisition process” (Wager, et. al., 2009, pg. 150). After the committee has been formed the project goals should be outlines along with the scope of the project and committee. Many questions will need to be discussed during this step. For example, the committee will need to determine the methods, processes, communication techniques, resources, and type of system that will be used through the selection and acquisition process. Once project goals and the scope of the project are defined the next step is to screen the marketplace and review vendor profiles. “Concurrently with the...
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...Name :Muhammad Musab Hussain ID:7601 Subject :MGM411 Human resource a,Analyze the job selected position and wirte their job description and job specification? Ans, description * Sales of companies goods and services * Building relationship with customers * Responsible for repeat sales of existing customers * Approaching customer with the aim of making new business deals * Presenting the product or service in a professional or structured way * Researching the market * Checking the inventory for products * Responding to incoming emails and phone calls * Attending team meeting and providing valuable feedback Specification * Strong sales skills * Communication skills * Bachelor’s degree * Master’s degree * Ability to multitask * Delivering revenue or exceeding target * 3 years minimum experience in sales * Organizational and time management skills * Negotiating and closing sales B,what method will you adopt for appointing a person on the selected position? Ans, 1. Top management approval 2. Advertisement development 3. Post advertisement on the news paper 4. Call the people for interviews 5. Conducts interviews 6. Select the people which best match the requirement 7. Further skim them 8. Conduct another interview 9. Upon approval select the final people for hiring 10. Conduct the physical examination 11. Hire people that pass the final test. c,how...
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...type attribute, browsers assume you are creating a(n): a. file input box b. text input box ***** c. hidden input box d. image input box 3. What is required in the syntax when you need to refer to the control element? a. checkbox b. form label c. id attribute ******** d. name asterisk 4. The asterisk in Name* tells users that Name is a(n): a. id attribute b. required field ******* c. form label d. inline element 5. You create a selection list using the: a. id attribute b. name attribute c. option element d. selection element ******* 6. Which term defines the number of options that the selection list displays at one time? a. element b. control c. value **** d. field 7. Consider your audience and its initial reaction to a selection list when setting the: a. size attribute ****** b. list control c. style coding d. type option 8. The name attribute provides the name of the: a. field value b. selection list c. style sheet d. data field ***** 9. To create an option button, use the input element with the type attribute set to a value of: a. file b. image c. radio ******* d. text 10. When you use the same name for two or more option buttons, browsers treat them as a group, so selecting one option button automatically: a. highlights all the others b. selects all of the others c. deletes all the others d. deselects all of the others ***** ...
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...Chapter -6 Employee Testing And Selection The importance of Selecting the Right Employee: If the Right Employee is not selected then there will be some problem like fall of organization,low performance,cost of recriting and hiring .there may 3problem feced by the employer if he Select wrong person Organizational performance Cost of Recruiting and hiring Legal Obligation and Liability Organizational Performance: Employee performance affects organizational performance.Organizational performance including stragic planner operation,finance.legal and organizational development will fall if the employer select the wrong candidate Perfromance differ for different employee The Costof Recruitong and hiring:The cost of simlpy finding the right person recruiting cost.if wrong person hired the the organization have to take another Interview ,advertige so that will increase the cost of the organization Legal Obligation and Liability:The candidate who apply for the job may be he/she be a bad person .He may have Criminal activities.so these Candidate can do Crime in the organization or harm the organization Avoiding Negliting hiring claims: • Carefully Scrutinze information on employment applications.the information about candidate provided on the application should be read very carefully • Get Written Authorization...
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