Manuel Buys Automobile Insurance from Ax-I-Dent Insurance Company

Multiple Choice

Manuel buys automobile insurance from Ax-i-Dent Insurance Company.If Manuel avoids having an accident for three years,Ax-i-Dent will reduce the price he has to pay for his insurance.Nevertheless,he routinely drives fast and with reckless abandon.

A) This is an adverse selection problem which should be corrected with government intervention.
B) Manuel is a principal and Ax-i-Dent is an agent in this principal-agent problem.
C) This is a moral hazard problem.
D) There is no way for Ax-i-Dent to determine whether Manuel is a cautious or risky driver.