Abstract: Insurance that lowers the cost of insured services to the insured may increase the usage of those services. This phenomenon is called in the insurance literature. This paper demonstrates how price elasticities of demand can be utilized to provide quantitative estimates of moral hazard. Empirical estimates of moral hazard, which are based on hospital patients in Iowa and their demand for hospital services, are presented. It is shown that the amount of moral hazard varied significantly with age class, type of illness, type of accommodation, and whether there were complications, but not with the sex of the patient. Recent papers by K. J. Arrow,' H. G. Grubel,2 and M. V. Pauly3 have been concerned with the question of how the existence of moral hazard may affect the welfare case for public provision of insurance in some instances. All three agree that the quantitative importance of moral hazard depends crucially on the price elasticities of demand for the insured
Publication Year: 1972
Publication Date: 1972-06-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 3
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