An individual renting a premium electric bicycle for a weekend city tour can pay an optional damage-waiver premium of £15 to the rental firm. If they damage or scratch the bicycle during the hire period, they do not need to pay any repair costs.
Evidence suggests that individuals who purchase this damage-waiver premium are significantly more likely to ride carelessly and damage the bicycles than those who do not.
What is this an example of?
Asymmetric information
Moral hazard
Negative externalities of consumption
Negative externalities of production
11 exam-style questions on OCR A Level Economics Information failure. Each one has a worked solution and a mark scheme showing where the marks go.