The incentive for prevention in public health Systems
AbstractThis paper examines the effect of moral hazard on public health insurance contract. It models primary prevention in a two period model with classification risk. Agent’s preferences appear to play an important role in the optimal determination of preventive effort and insurance between generations. If absolute prudence is larger than twice absolute risk aversion, moral hazard increases intergenerational insurance and classification risk. This highlights a tradeoff between prevention and insurance arising from classification risk. An increase in the difference between prudence and twice risk aversion (that we define as the degree of “protectiveness”) moreover makes public insurance contracts more stable (when competing with spot insurance) if the cost of prevention is low enough when agents preferences exhibit CRRA. Under a formulated utility function with linear reciprocal derivative, we finally show that an increase in agent’s degree of “protectiveness” enhances the stability of public insurance and the extent of intergenerational insurance.
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Bibliographic InfoPaper provided by Institut d'economie publique (IDEP), Marseille, France in its series IDEP Working Papers with number 1001.
Length: 36 pages
Date of creation: 17 Feb 2010
Date of revision: 17 Feb 2010
Public health insurance; Classification risk; Moral Hazard; Prudence.;
Other versions of this item:
- Renaud Bourlès, 2008. "Moral Hazard In Dynamic Insurance Classification Risk And Prepayment," Working Papers halshs-00340830, HAL.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-24 (All new papers)
- NEP-CTA-2010-07-24 (Contract Theory & Applications)
- NEP-HEA-2010-07-24 (Health Economics)
- NEP-IAS-2010-07-24 (Insurance Economics)
- NEP-UPT-2010-07-24 (Utility Models & Prospect Theory)
You can help add them by filling out this form.
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