Hazardous partnerships

Much was said about the problem of moral hazard after Northern Rock was rescued by the Bank of England. The idea, which takes its roots in game theory, is quite simple. Say you own a house. You go to the insurance company to take insurance out for it. If the insurer covers you completely, you won't have the incentive to be careful when playing with matches - you may burn down your house and cause a loss to your insurer. The problem is that the insurer has no way of knowing how much fun you hav

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