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Severity of illness and the welfare effects of moral hazard

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  • Joseph Eisenhauer

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    Abstract

    The extent to which the moral hazard caused by health insurance represents economic inefficiency has been the subject of much debate. This paper incorporates health status in a model of moral hazard, and finds that seriously ill patients are likely to exhibit greater moral hazard than healthier patients but the proportion of moral hazard that is inefficient declines with the severity of illness. Because of these competing tendencies, the cost of resource misallocation is parabolic in the severity of illness. The effect of the consumer’s initial wealth endowment is also considered. Copyright Springer Science+Business Media, LLC 2006

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    File URL: http://hdl.handle.net/10.1007/s10754-006-9006-3
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    Bibliographic Info

    Article provided by Springer in its journal International Journal of Health Care Finance and Economics.

    Volume (Year): 6 (2006)
    Issue (Month): 4 (December)
    Pages: 290-299

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    Handle: RePEc:kap:ijhcfe:v:6:y:2006:i:4:p:290-299

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    Web page: http://www.springerlink.com/link.asp?id=106603

    Related research

    Keywords: Health insurance; Moral hazard; Severity of illness; Marginal rate of substitution; I11; G22;

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    1. Nyman, John A., 1999. "The economics of moral hazard revisited," Journal of Health Economics, Elsevier, vol. 18(6), pages 811-824, December.
    2. Pauly, Mark V. & Held, Philip J, 1990. "Benign moral hazard and the cost-effectiveness analysis of insurance coverage," Journal of Health Economics, Elsevier, vol. 9(4), pages 447-461, December.
    3. Pauly, Mark, 1983. "More on moral hazard," Journal of Health Economics, Elsevier, vol. 2(1), pages 81-85, March.
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    Cited by:
    1. Wong, Irene O.L. & Lindner, Michael J. & Cowling, Benjamin J. & Lau, Eric H.Y. & Lo, Su-Vui & Leung, Gabriel M., 2010. "Measuring moral hazard and adverse selection by propensity scoring in the mixed health care economy of Hong Kong," Health Policy, Elsevier, vol. 95(1), pages 24-35, April.
    2. Gorsky, Martin & Guntupalli, Aravinda & Harris, Bernard & Hinde, Andrew, 2011. "The ‘cultural inflation of morbidity’ during the English mortality decline: A new look," Social Science & Medicine, Elsevier, vol. 73(12), pages 1775-1783.

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