Moral Hazard

Paper Summary:

Moral hazard is the condition when one party in a contract has an information advantage over the other party and engages in post-contractual opportunistic behavior. This paper examines how there are two agents through which the issue of moral hazard enters the field of health insurance, the insured and the medical practitioners treating the insured. It looks at how in the case of health insurance, the information advantage accrues to the health services consumer/physician who know more precisely what problem the consumer is experiencing and how to treat it.

From the Paper:

"The interest of the insurance company in limiting what it pays out in insurance has been commonly regarded as a property right; when the insured attempts to have the insurance company pay costs, it is sometimes viewed as if the insured were trying to take the insurance company's property. On the other hand, the property of the insurance company-the premiums-were not donations but rather the cost of a 'service.' The service itself is the payment of medical bills when and as needed. If the service is not provided, then it could fairly be said that the insurance company was engaging in 'theft of services' against the insured."

More papers on Moral Hazard:

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• Essay # 39723 : "Moral Hazard and Adverse Selection"

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