The Truth About Moral Hazard and Adverse Selection

27 Pages Posted: 26 Apr 2011

See all articles by Mark V. Pauly

Mark V. Pauly

University of Pennsylvania - Health Care Systems Department; National Bureau of Economic Research (NBER)

Date Written: March 1, 2007

Abstract

This brief is actually going to have two levels. One level will go with the advertised title, and I’ll tell you my current views on the truth about moral hazard and adverse selection. Adverse selection will serve as somewhat of a handmaid of moral hazard, as you will see. That’s one level.

The other level, though, which continues to surprise me, is that these two topics - they’re two buzzwords from insurance theory - have generated an enormous amount of policy interest and, yes, passion. Some people passionately believe some things about moral hazard that others passionately disbelieve. And so as part of this second level I will draw back a bit from the actual subject matter to ask a kind of positive public policy question: Why is it that some people can get so passionate about a subject that seems fairly esoteric?

Keywords: health insurance, adverse selection, moral hazard

JEL Classification: D80, G18, G22, I10

Suggested Citation

Pauly, Mark V., The Truth About Moral Hazard and Adverse Selection (March 1, 2007). Available at SSRN: https://ssrn.com/abstract=1822442 or http://dx.doi.org/10.2139/ssrn.1822442

Mark V. Pauly (Contact Author)

University of Pennsylvania - Health Care Systems Department ( email )

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National Bureau of Economic Research (NBER)

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