Externalities the Environment and Moral Hazard and Adverse Selection

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thyqnayby

Economics

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1. Externalities and the Environment

Meyer describes the "Tragedy of the Commons." The IMF article explains how this type of problem is an example of an "externality." What is an externality? What might be a good government policy to solve the problem of the environmental externality that leads to high green house gas emissions?

2. Moral Hazard and Adverse Selection

"Moral hazard" is a term often used in the context of peoples' behavior once they have insurance. Szuchman and Anderson explore the idea of moral hazard in personal relationships. How would you define moral hazard? Provide an example of moral hazard that you have observed in your own community or workplace.

How does moral hazard differ from adverse selection? Provide an example to illustrate this concept.

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Running Head: EXTERNALITIES, MORAL HAZARDS AND ADVERSE SELECTION

Externalities, Moral Hazards and Adverse Selection
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EXTERNALITIES, MORAL HAZARDS AND ADVERSE SELECTION

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Externalities and the Environment
An externality refers to a consequence of an economic activity that is experienced by
unrelated third parties. In general terms, it is a negative or positive impact of an industrial or
organizational activity (Dasgupta & Ehrlich, 2013). Positive externalities are favorable effects on
the environment and people while negative externalities have adverse impacts on the
environment and people. Pollution, for example, is a negative externality t...


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