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Moral hazard in a mutual health-insurance system: German Knappschaften, 1867-1914

Author

Listed:
  • Timothy W. Guinnane

    () (Yale University, Economic Growth Center)

  • Jochen Streb

    (University of Hohenheim)

Abstract

This paper studies moral hazard in a sickness-insurance fund that provided the model for social-insurance schemes around the world. The German Knappschaften were formed in the medieval period to provide sickness, accident, and death benefits for miners. By the mid-nineteenth century, participation in the Knappschaft was compulsory for workers in mines and related occupations, and the range and generosity of benefits had expanded considerably. Each Knappschaft was locally controlled and self-funded, and their admirers saw in them the ability to use local knowledge and good incentives to deliver benefits at low cost. The Knappschaft underlies Bismarck’s sickness and accident insurance legislation (1883 and 1884), which in turn forms the basis of the German social-insurance system today and, indirectly, many social-insurance systems around the world. This paper focuses on a problem central to any insurance system, and one that plagued the Knappschaften as they grew larger in the later nineteenth century: the problem of moral hazard. Replacement pay for sick miners made it attractive, on the margin, for miners to invent or exaggerate conditions that made it impossible for them to work. Here we outline the moral hazard problem the Knappschaften faced as well as the internal mechanisms they devised to control it. We then use econometric models to demonstrate that those mechanisms were at best imperfect.

Suggested Citation

  • Timothy W. Guinnane & Jochen Streb, 2009. "Moral hazard in a mutual health-insurance system: German Knappschaften, 1867-1914," Working Papers 978, Economic Growth Center, Yale University.
  • Handle: RePEc:egc:wpaper:978
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    References listed on IDEAS

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    1. Murray, John E. & Nilsson, Lars, 2007. "Accident risk compensation in late imperial Austria: Wage differentials and social insurance," Explorations in Economic History, Elsevier, vol. 44(4), pages 568-587, October.
    2. Emery, J. C. Herbert, 1996. "Risky Business? Nonactuarial Pricing Practices and the Financial Viability of Fraternal Sickness Insurers," Explorations in Economic History, Elsevier, vol. 33(2), pages 195-226, April.
    3. Gerhard Bry, 1960. "Wages in Germany, 1871-1945," NBER Books, National Bureau of Economic Research, Inc, number bry_60-1.
    4. Dhaval Dave & Robert Kaestner, 2009. "Health insurance and ex ante moral hazard: evidence from Medicare," International Journal of Health Economics and Management, Springer, vol. 9(4), pages 367-390, December.
    5. Gerhard Bry, 1960. "Introduction to "Wages in Germany, 1871-1945"," NBER Chapters,in: Wages in Germany, 1871-1945, pages 1-13 National Bureau of Economic Research, Inc.
    6. Bentley B. Gilbert, 1965. "The Decay of Nineteenth-Century Provident Institutions and the Coming of Old Age Pensions in Great Britain," Economic History Review, Economic History Society, vol. 17(3), pages 551-563, April.
    7. Gottlieb, Daniel, 2007. "Asymmetric information in late 19th century cooperative insurance societies," Explorations in Economic History, Elsevier, vol. 44(2), pages 270-292, April.
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    Citations

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    Cited by:

    1. Timothy W. Guinnane & Jochen Streb, 2012. "Incentives that saved lives: Government regulation of accident insurance associations in Germany, 1884-1914," Working Papers 1013, Economic Growth Center, Yale University.
    2. Catarina Goulão & Luca Panaccione, 2015. "Pooling promises with moral hazard," Economics Bulletin, AccessEcon, vol. 35(1), pages 460-465.
    3. Jopp, Tobias Alexander, 2010. "The welfare state evolves: German Knappschaften, 1854 - 1923," FZID Discussion Papers 16-2010, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    4. Timothy W. Guinnane, 2011. "The Historical Fertility Transition: A Guide for Economists," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 589-614, September.
    5. Timothy Guinnane & Jochen Streb, 2012. "Incentives that Saved Lives: Government Regulation of Accident Insurance Associations in Germany, 1884–1914," Ruhr Economic Papers 0364, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    6. repec:zbw:rwirep:0364 is not listed on IDEAS
    7. Jopp, Tobias Alexander, 2011. "Old Times, Better Times? German Miners' Knappschaften, Pay-as-you-go Pensions, and Implicit Rates of Return, 1854–1913," Ruhr Economic Papers 238, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    8. Lehmann-Hasemeyer, Sibylle & Streb, Jochen, 2017. "Does Social Security crowd out Private Savings? The Case of Bismarck’s System of Social Insurance," IBF Paper Series 06-17, IBF – Institut für Bank- und Finanzgeschichte / Institute for Banking and Financial History, Frankfurt am Main.

    More about this item

    Keywords

    sickness insurance; moral hazard; Knappschaft; social insurance;

    JEL classification:

    • N33 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - Europe: Pre-1913
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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