Microeconomics: Principles, Applications, and Tools (8th Edition)

Published by Prentice Hall
ISBN 10: 0-13294-886-9
ISBN 13: 978-0-13294-886-9

Chapter 14 - Imperfect Information: Adverse Selection and Moral Hazard - Exercises - 14.4 Insurance and Moral Hazard - Page 335: 4.5

Answer

accidents drive less cautiously

Work Step by Step

Roads become more hazardous if auto insurance becomes mandatory. Therefore we have: Car insurance increases traffic $\textbf{accidents}$ because insured drivers $\textbf{drive less cautiously}$.
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