Asymmetric Information and Social Insurance

Vocabulary flashcards based on the lecture notes about Asymmetric Information and Social Insurance.

Asymmetric Information

A situation in which one party in a transaction has more or better information than the other party.

Adverse Selection

A situation where individuals with higher risk are more likely to purchase insurance, leading to potential losses for insurers.

Moral Hazard

The phenomenon where having insurance leads to taking greater risks because the costs are borne by the insurer.

Consumption Smoothing

The process of transferring consumption from periods of high consumption (low marginal utility) to periods of low consumption (high marginal utility).

States of the World

Different possible future outcomes in uncertain scenarios.

Diminishing Marginal Utility

The principle that the additional satisfaction or utility gained from consuming one more unit of a good decreases as consumption increases.

Means-Tested

Programs or benefits that require eligibility to be determined by income or asset levels.

Social Insurance

Government intervention in the provision of insurance to support individuals during adverse events.

Unemployment Insurance (UI)

A government program that provides financial support to individuals who are unemployed through no fault of their own.

Social Security

A federal program that provides financial assistance to retirees and the disabled.

Disability Insurance (DI)

Insurance that provides income support in the event of a career-ending disability.

Medicare

A federal health insurance program for people aged 65 and older, and for some younger people with disabilities.

Medicaid

A program administered by states that provides health coverage for low-income individuals.

Adverse Event

A negative occurrence that may require assistance or compensation from an insurance program.

Paternalism in Insurance

Government intervention to protect individuals from their own poor decision-making regarding insurance.

Administrative Costs

Expenses incurred in the management and operation of an insurance program.

Moral Hazard

The risk that a party insulated from risk may behave differently than if they bore the full consequences of that risk.

Free-Rider Problem

When those who benefit from resources they do not pay for, relying on others to shoulder the costs.