Severity of illness and the welfare effects of moral hazard
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
Volume (Year): 6 (2006)
Issue (Month): 4 (December)
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- Pauly, Mark, 1983. "More on moral hazard," Journal of Health Economics, Elsevier, vol. 2(1), pages 81-85, March.
- 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.
- Nyman, John A., 1999. "The economics of moral hazard revisited," Journal of Health Economics, Elsevier, vol. 18(6), pages 811-824, December.
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