Dysfunctional Non-Market Institutions and the Market
There is a widespread belief that when significant market failure occurs, there are strong incentives for non-market institutions to develop which go at least part of the way to remedying the deficiency. We demonstrate that this functionalist position is not in general valid. In particular, we examine a situation where insurance is characterized by moral hazard. We show that when market insurance is provided, supplementary mutual assistance between family and friends (unobservable to market insurers) -- a form of non-market institution -- will occur and may be harmful. This example suggests that non-market institutions can arise spontaneously even though they are dysfunctional.
|Date of creation:||Jul 1988|
|Date of revision:|
|Publication status:||published as American Economic Review, "Moral Hazard and Non-Market Institution: Dysfunctional Crowling Out or Peer Monitoring?" Volume 81, pp. 179-190 1991|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carmichael, H Lorne, 1988. "Incentives in Academics: Why Is There Tenure?," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 453-72, June.
- Mark V. Pauly, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 44-62.
- Arnott, Richard J & Stiglitz, Joseph E, 1988.
" The Basic Analytics of Moral Hazard,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 90(3), pages 383-413.
- Marshall, John M, 1976. "Moral Hazard," American Economic Review, American Economic Association, vol. 66(5), pages 880-90, December.
- George A. Akerlof, 1980. "A Theory of Social Custom, of which Unemployment may be One Consequence," The Quarterly Journal of Economics, Oxford University Press, vol. 94(4), pages 749-775.
- Richard Arnott & Joseph Stiglitz, 1990.
"The Welfare Economics of Moral Hazard,"
NBER Working Papers
3316, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2666. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.