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Moral Hazard and Health Insurance When Treatment Is Preventive
Author(s) -
Seog S. Hun
Publication year - 2012
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2011.01459.x
Subject(s) - moral hazard , morale hazard , actuarial science , hazard , hazard ratio , health hazard , economics , environmental health , medicine , insurance policy , casualty insurance , microeconomics , incentive , chemistry , confidence interval , organic chemistry , auto insurance risk selection
We consider a two‐period model under moral hazard when treatment is preventive. In the second period, the treatment level under moral hazard is higher than that under no moral hazard. However, it may be lower than that under moral hazard when overinsurance is not allowed. In the first period, the treatment level is higher when treatment is preventive than when it is not. Treatment level is also higher as the discount factor increases. We demonstrate that a treatment increase following a coverage increase does not necessarily imply moral hazard. These findings imply that moral hazard is possibly overemphasized in the literature.