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Ralf owns a home with a fireplace and a generator
Ralf owns a home with a fireplace and a generator. He has stacks of wood and several 55-gallon drums of camping oil in his garage. He likes to go camping and leaves his home for several days at a time, often with a fire burning in his fireplace. In addition, he leaves his home unlocked. Which of the following hazards apply?
a) Physical hazard and moral hazard.
b) Morale hazard only.
c) Physical hazard only.
Expert Solution
The correct answer is A.
The physical hazard is obvious since the home could burn down. The moral hazard arises since his behavior is probably being influenced by the fact that the consequences would be worse for other people than himself. If his house burns down or he is the victim of theft, he may benefit from an insurance payout. If other people's property is damaged because of a spreading fire, their property will be covered by their own insurance policies.
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