Why is my insurance so expensive? Frictions and Failures in Financial Markets

The course will begin focusing on low-income countries, where these markets often fail. It will begin with a survey of the consequences of a lack of access to credit and the costs that households undertake to cope with the large number of uninsured risks they face. Beginning in low-income settings is useful because their financial markets are much simpler than the complex markets we participate in in the United States, and so they offer an ideal setting to explore the fundamentals underlying the market failures they often experience. As such, the second portion of the course will present the theory on how information asymmetries, specifically moral hazard and adverse selection, can lead to higher insurance premiums and interest rates.