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A special characteristic of an insurance contract where equal value is not exchanged between parties is known as:

Answer :

Final answer:

In an insurance contract, the special characteristic where equal value is not exchanged between parties is known as imperfect information and manifests as a moral hazard. This occurs when a party insured against a specific event becomes less cautious about that event due to the financial security provided by the insurance.

Explanation:

The special characteristic of an insurance contract where equal value is not exchanged between parties is known as imperfect information or asymmetric information. This refers to situations where either the buyer or the seller, or both, are uncertain about the qualities of what they are buying and selling. In terms of an insurance contract, this can manifest through the concept of moral hazard. Moral hazard occurs when those who have insurance against a specific event have less incentive to take steps to prevent that event from happening, knowing they are protected financially. For example, a home-owner with house insurance may not take the same preventative measures against fire risks as a counterpart who has no insurance. Thus, there is an unequal exchange of value: the insurer bears financial risks while the insured party may, consciously or subconsciously, increase the likelihood of the risk event after the insurance contract is established.

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