Compare and Contrast Debt and Equity Financing

question 61

Essay

Compare and contrast debt and equity financing.

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Definitions:

Employer-provided Health Insurance

Health insurance coverage offered to employees (and often their dependents) as part of an employment benefits package.

Self-insure

The practice of setting aside funds to cover potential losses rather than purchasing insurance from a third party.

Wellness Program

A coordinated and comprehensive set of health promotion and protection strategies implemented at the workplace, aimed at improving employee health.

Moral Hazard

Post-contractual increases in risky or negative behavior. Examples are reduced incentive to exercise care once you purchase insurance and reduced incentives to work hard once you have been hired. Moral hazard is similar to adverse selection in that it is caused by information asymmetry; it differs in that it is caused by hidden actions rather than hidden types.