Final answer:
Luxury Cars Inc. uses tracking devices to monitor the speed of their cars, mainly to mitigate moral hazard by discouraging reckless driving and reducing the likelihood of accidents. This approach aligns with insurance practices where safer behavior is incentivized to manage risk.
Step-by-step explanation:
To solve the moral hazard problem of racing with its cars, Luxury Cars Inc. has used the tracking device to monitor the speed of the cars. This measure is intended to discourage owners from reckless driving which could lead to higher accident rates and, consequently, insurance claims. By monitoring the speed, the company also implicitly works to prevent accidents, which can be a direct result of racing or high-speed driving. The use of tracking technologies helps insurance companies to mitigate moral hazard by encouraging safer driving habits. Such monitoring capabilities align with practices where business owners are offered lower rates for adopting safety measures, like installing comprehensive security and fire suppression systems that are then regularly inspected. Although not directly aimed at improving fuel efficiency or customer satisfaction, speed monitoring can have indirect benefits in both areas by promoting responsible driving behavior, which can lead to reduced fuel consumption and potentially improve overall customer satisfaction with the safety aspects of the vehicle.