Scenario 17.4 Consider the Following Information

Multiple Choice

Scenario 17.4
Consider the following information:
StowUrStuff Storage is located slightly below sea level in a coastal town. It could build and maintain a flood control system around its property at an annual cost of $1000, and if it did so, the probability of a flood's doing $1,000,000 in damage during the year would be .005. With no flood control system, the probability of such a flood would be .01.
-Refer to Scenario 17.4. Moral hazard would be eliminated in this situation if:

A) the insurer would always charge $5000.
B) the insurer would always charge $10,000.
C) the insurer could costlessly monitor whether a flood control system is in place, and adjust the premium upward if it is not.
D) the insurer could costlessly monitor whether a flood control system is in place, and adjust the premium downward if it is not.
E) the flood did not occur.