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Archive 1 |
Are moral hazards the same thing as "perverse incentive"s? -- maru (talk) contribs 01:20, 8 July 2006 (UTC)
Following discussion with Bellemichelle here and on the discussion page for Morale hazard, we have agreed to consolidate the differing concepts here. In my edit today, I have separated the usage in economic theory from the usage in insurance. I think we have also agreed to merge morale hazard into this article, on the grounds that the concepts make more sense together than separately. -- RichardVeryard 10:49, 27 November 2006 (UTC)
I think moral hazard qualifies as an Anti-pattern. If consensus agrees, MH should be added as a list item there. (But is it organizational or social? Sometimes both. Sometimes even related to computer programming. *s*) This page should be added to the Category:Anti-patterns. Any other opinions? PhilipR 16:23, 14 February 2006 (UTC)
this part from above is incorrect:
"In economic theory, the term moral hazard refers to the possibility that the redistribution of risk (such as insurance which transfers risk from the insured to the insurer) changes people's behaviour. The term was introduced into economic theory by Kenneth Arrow in 1963."
The term Moral Hazard was used in sept 1905 By Everett Crosby in "Annals of the American Academdy of Poltical and Social Science, Vol 26 Insurance pp224-238. The title of the article was FIRE PREVENTION.
I doubt that even this was the first introduction of the term, but the fire prevention use is common in many example of the definition, so it may be the first popularized.
I can be contacted through my blog: http://tswe.blogspot.com/ Update the page as you find appropriate. I couldn't edit the part of the page where the error was.
—Preceding unsigned comment added by 206.210.27.33 ( talk • contribs) (Moved by PhilipR 19:46, 19 December 2006 (UTC))
Thanks for moving my comments to the talk area to be discussed.
I think the proper way to think of moral hazard - which I don't think is different from morale hazard -- is a the uncertanty principle http://en.wikipedia.org/wiki/Uncertainty_principle with the uncertanty principle the act of measuring an event changes the event.
With moral hazard to act of insuring an event changes the probability that the event will occur.
The probability of occurance is determined before the existance of the insurance. Once insurance exists the model used to determine the probability of the occurance has changed. In the insurance industry they are only concerned when the change makes the event more likely to occur but there is nothing that says it must change the risk in that manner.
Does anyone know of a term used for an change that makes the event less likely to occur. If not moral hazard could be used for change either way.
BTW: this is the link to the Everett Crosby article.
http://links.jstor.org/sici?sici=0002-7162(190509)26%3C224%3AFP%3E2.0.CO%3B2-G
Also is there a way to set a talk to e-mail me once someone else updates it ?
This link calls Moral Imperitive the oppostie of moral hazard.
http://links.jstor.org/sici?sici=0022-4367(198803)55%3A1%3C101%3AMHAMI%3E2.0.CO%3B2-8
I am confused by the first paragraph, which refers to actions interpreted differently by two parties due to asymmetric information, and the bulk of the remainder of the article, which deals more with risky behavior arising from risk transfer. How does the latter derive from the former? A sentence explaining the connection would be helpful.
-cas —Preceding
unsigned comment added by
148.87.1.170 (
talk)
16:07, 12 September 2007 (UTC)
Sorry, just a layman here. I find the first paragraph of this article misleading. I think in common parlance moral hazard means a tendency to take undue risks because the costs are not borne by the party taking the risk. They believe someone else will bear the costs/pick up the pieces/cover their a$$. I came here looking for verification of common usage and instead got a bunch of gibberish [?] about morality.
Cbmccarthy 21:43, 18 September 2007 (UTC)
The final paragraph is still an example of a breakdown of insurance. The person is pursuing healthcare that costs more than his willingness to pay, thus leading to an inefficiency. —Preceding unsigned comment added by 141.152.168.23 ( talk) 17:12, 26 November 2007 (UTC)
Moral hazard is a concept developed early in the days of risk pooling that is the basis for both corporations and of insurance. Somewhere I read something that associates the date of the term as originating circa 1600. The term is in reference to a general class of behavior, moral being the term of the time, where a party seeks to join the risk pool in order to effectively defraud the pool. As the risk pooling was forming a group to fund a ship to go trade with the group pooling the cost, the risk, and the profit if any existed. Insurance was the derivative that evolved - for a premium, the insurance pool would repay the losses without putting up the capital, eg., a ship would be insured without the insurer buying the ship. The moral hazard was an alleged ship owner and captain getting funded for a voyage with the investors insured, and then the captain never returning with his ship or the cargo, and the ship owner collecting for the presumed loss of the ship. By the same token, allowing people to buy insurance only when they have an imminent loss is a moral hazard.
What I find to be a gross distortion is to claim that the fact that one has insurance and will suffer a loss which the insurance will mitigate results in a moral hazard. The argument is that if you don't have insurance, you won't suffer a heart attack becuase you would suffer a loss, but with insurance, you will chose to suffer a heart attack because the insurer will pay for the treatment and you will profit from your suffering the pain and suffering of the heart attack because you lose nothing by having the heart attack.
Further, until the time that the distorted description of moral hazard was invented, insurers were proactive in reducing risk; fire insurers sought to expand fire departments, hydrants, and create building codes, and so on to both eliminate the hazard as well as reduce the loss when the fires that couldn't be prevented occurred. Communities that cooperatively provided for health care also sought to reduce the risks to community health and in the workplace.
Ok, I'm straying from the purpose, but what I'm arguing is that the term moral hazard has changed in meaning as the purpose of insurance has been called into question. It is this history of the term that needs to be documented. Does anyone have an OED which provides references to the use of the term moral hazard historically. It would probably provide the authoritative first use references.
In looking at my hardcopy britanica circa mid-80s, it defines three types of insurance hazards, moral, psychological, and physical. Moral is described as above, while the description of psychological is what the main article describes: "a pyshological hazard exists when unconsciously behaves in a way as to engender loss." It further says some people seem to be accident prone, suggesting they want the insured event to occur. Physical hazard is fire insurance for a wood building. So, it seems that who ever raised moral hazard to its common usage today was ignorant of the well established meanings of moral, psychological, and physical hazard. Mulp ( talk) 18:22, 11 August 2009 (UTC)
"Investors bought securities and hedged against the risk of default and prepayment, pushing those risks further along." Would someone please explain how prepayment is risk? As I see it, if a loan is prepaid, then the money comes back to the lender sooner and can be loaned out again. 75.45.2.84 ( talk) 23:54, 27 April 2008 (UTC)JH
"A special case of moral hazard is called a principal-agent problem," -- Shouldn't it be the other way around? radek ( talk) 03:38, 20 September 2008 (UTC)
The following language in paragraph 9 is a direct quote from a right-wing blogger named James A. Donald. "which means that there is no one person responsible for verifying that any one particular loan is sound, that the assets securing that one particular loan are worth what they are supposed to be worth, that the borrower responsible for making payments on the loan can read and write, that he speaks the language that the papers that he signed were written in, that he was sufficiently sober when he signed them to remember signing them, or even that the paperwork exists and is in good order." I have no problem with the quote (though I don't share Donald's politics at all). But should we not attribute it? n. b. I believe that it is short enough for "fair use" to apply. Of course, the possibility does exist that Donald himself got it from somewhere, but Donald is as far back as I can trace it. ```` —Preceding unsigned comment added by Howard-Hedger ( talk • contribs) 22:15, 20 May 2009 (UTC)
I noticed a sudden change in tone from "encyclopedic" to "opinionated comment on current affairs" at this para (5th of the In Finance section), which continued over the following two paras. In the 6th para, there's even an unsubstatiated (but of course possibly true) accusation of reckless cronyism: "The data that the regulators focused on was more relevant to politically mobilizing voting blocks in particular electorates than to keeping the financial system solvent." Then in the 7th para, opinion on the cause of the 2007/8 subprime mortgage crisis continues without substantiation or objectivity. This tarnishes the remainder of the article, and it also becomes rambling and unfocused at this point. BobBriscoe ( talk) 19:11, 28 August 2009 (UTC)
"On the other hand, some may be more careful about maintaining their health if they do not need to pay for health care, because paying for health care could be too financially burdensome."
Um... what? If someone does need to pay for health care, they will be careful about maintaining their health. This is the opposite. 193.95.165.190 11:42, 8 November 2007 (UTC)
A somewhat related effect lies in the area now known as Human Factors Engineering, in which machines are designed according to ergonomic principles such as "Murphy-proofing". Under this principle, the operator will find it easy to operate correctly, and difficult to operate incorrectly; and if possible, errors will tend to be benign or "soft failures". There is a long-term consequence of such designs, however, summarized by:
"The ultimate result of shielding men from the effects of folly is to fill the world with fools."
(Herbert Spencer 1820-1903) —Preceding unsigned comment added by Nuance 4 ( talk • contribs) 21:36, 27 December 2009 (UTC)
I don't dispute that moral hazard may arise in situations in which there is information symmetry, and in fact is more likely to arise if the risk takers can keep their actions hidden, but I do dispute that this is a requirement for the concept to apply and that "moral hazard would not arise under perfect information" because "risky behavior would be punished". There is no reason to assume that in general the parties negatively impacted by morally hazardous risk taking are capable of meting out such punishment, even under perfect information. And if they could punish risky behavior, it is not necessarily rational for them to choose to exercise that capability. Think, for example, of Professional indemnity insurance. The insurer could in theory (attempt to) deny claims if the claim is due to the policy holder's professional negligence, but then they would soon be out of business. -- Lambiam 15:01, 17 August 2010 (UTC)
Anybody? Seems like it's worth a mention with a link to a complete article, but many sentences are spent explaining in detail (with biased language) exactly what happened. This is an article about moral hazard, not about particular instances of it. —Preceding unsigned comment added by 24.69.150.231 ( talk) 05:49, 5 June 2010 (UTC)
I took out the end of the finance part, specifically the 'too big too fail' part. The part I have the biggest problem with was the idea that 'good sound regulation' could stop moral hazard. Moral Hazard occurs because the potential downside is systemic risk. An institution knows its own failure would create systemic risk while regulators may not. This is a reality and no amount of regulation can solve this information asymmetry.
Zeppelin55 (
talk)
03:15, 20 March 2011 (UTC)
According to modern economic theory, moral hazard is a widespread phenomenon, resulting from situations of information asymmetry in which unobserved actions may occur. Important situations in which it may arise include insurance (when people who have insurance act in riskier ways), employment (when the employer cannot precisely observe the choices made by the employee), management (when owners or shareholders cannot perfectly observe the choices made by the manager), and finance (when institutions insured by the government choose to make riskier investments). The application of moral hazard that is currently controversial in the press and in political debates is its role in finance. But from the point of view of economic theory, all these types of moral hazard are important. The page should be reweighted so that it does not appear to imply that finance is the main application of moral hazard. Rinconsoleao ( talk) 10:18, 17 August 2010 (UTC)
— 64.252.166.207 21:39, 29 December 2006 (UTC) Two additional examples I'd like to submit for review relate to the tobacco industry and the utility industry. Tobacco companies have inflicted direct costs on the health care system for years and have escaped the 'true' burden of these costs. And utility companies have contributed to global warming and pollution that have led to costly 'cleanup' efforts and health problems. And like the tobacco companies, they have not had to bear the costs resulting from their direct actions. The developing CO2 market is an attempt to capture a portion of these costs and reward positive behavior. 64.252.166.207 21:39, 29 December 2006 (UTC)
(Seems that the tobacco industry has somehow usurped the personal choice of tobacco users. Is there no consideration given to the early deaths from tobacco consumption serving to relieve the health care system from late-stage health management? Yours seems to be an unmeasured and biased position. TargetDriver) — Preceding unsigned comment added by 74.215.69.121 ( talk) 13:29, 27 May 2012 (UTC)
-Should tenure for university professors added to the list of "management" hazards? — Preceding unsigned comment added by 206.230.179.161 ( talk) 17:22, 11 February 2013 (UTC)
Great article! Direct, succinct, no funny words. I've never seen anything this good on Wikipedia, but I seriously hope it is the way of the future. People shouldn't comment like this normally, but it needs to be said: Write like this. — Preceding unsigned comment added by 108.173.100.24 ( talk) 04:50, 12 April 2013 (UTC)
I am very perplexed when I see morale hazard used to support an increase in insurance costs. The argument I've heard is that if you have fire insurance, you're not going to do as much as you could to prevent your house from burning down. We're not talking about arson or some other insurance fraud. Those are extremes activities that are punished in other ways. The argument as stated makes no sense to me because that seems to be what an insurance company is selling: peace of mind. At least that's what their ads target (besides the fact that they're required by law). But if the economics is calculated out to be a perfect transaction (the insurer is paid the cost of the insured risk times the chance of the risk occurring) there is no reason for the insured to pay more than that, which is the extra amount insurance currently charge to make money (otherwise, in the grand scheme of things, the perfect transaction would only allow the insurer to break even). The extra money is being paid for the peace of mind. So you don't go absolutely nuts when the house you took a lifetime to buy burns to the ground. There is already a compulsion to avoid the disaster: besides the horror of seeing your worldly possessions go up in flames, not to mention the risk to life, there are the externalities that the insured loses out of pocket. If someone can help me figure out how morale hazard is a problem for insurance companies, I would be really grateful.
Actually, "moral" hazard arises from intentional destruction to collect from the insruance company or the exaggeration of real claims in order to collect more from the insurance company. "Morale" hazard arises from a persons increased indifference because of the existance of the insurance product. TomPurdue 19:39, 5 September 2006 (UTC)
There really is such a thing as "morale hazard", and it's a separate but related concept. I'm not an expert, but I do know that moral hazard is not necessarily intentional destruction. So I've removed this text and added a link to stub for "morale hazard".
In insurance, at least, the two need to be distinguished. From "Property and Liability Insurance Principles", by Ludhard & Wiening (published by the AICPCU):
Moral hazards are conditions that may lead a person to intentionally cause or exaggerate a loss. The threat from moral hazard is the possibility that the insured may intentionally cause a loss or file a false claim. For example, an insured may intentionally cause a fire or an auto accident to collect a claim payment on a building or car and unjustly enrich himself or herself. Attitudinal hazards, also known as morale hazards, involve carelessness, or indifference to, potential loss on the part of an insured or applicant. Such hazards are more subtle and thus more difficult to detect than are moral hazards. A particularly dangerous attitudinal hazard is an insured's attitude that "I don't need to be careful because I have insurance."
I think that illustrates my point well and shows they are two seperate concepts. Bellemichelle 15:02, 11 October 2006 (UTC)
A Glazier who pays someone to smash windows, thus creating business for the Glazier.
Joe drives very carefully since he is uninsured, after he buys insurance he drives very recklessly since he knows the insurance will pay for damages.
Discussion on making the three different concepts clearer on the Morale Hazard talkpage - here. Jonpatterns ( talk) 17:22, 21 April 2015 (UTC)
Dr. Guha has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:
1.Economists distinguish moral hazard from adverse selection, another problem that arises in the insurance industry, which is caused by hidden information rather than by hidden actions.
Add "Akerlof (1970) showed how both problems could combine to cause market collapse, using the market for secondhand cars (lemons) as an example." Cite Akerlof, George (1970) "The Market for Lemons: quality uncertainty and the market mechanism." Quarterly Journal of Economics, 85, 488-500.
2.A second example is the case of a bank making a loan to an entrepreneur for a risky business venture. The entrepreneur becoming overly risky would be ex-ante moral hazard, but willful default (wrongly claiming the ventured failed when it was profitable) is ex-post moral hazard. Add "An instance where asymmetries of information create moral hazard occurs when a buyer cannot assess the quality of goods that he is buying on inspection. This provides the seller with a moral hazard to sell him substandard goods, passing them off as high-quality products (see Guha(2016))." Please cite:
Guha, Brishti (2016) "Moral Hazard, Bertrand Competition, and Natural Monopoly", MPRA working paper no. 70966.
We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.
Dr. Guha has published scholarly research which seems to be relevant to this Wikipedia article:
ExpertIdeasBot ( talk) 16:33, 19 May 2016 (UTC)
Dr. Cabrales has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:
This is OK, but it is way to discursive. It would benefit from a bit more technical explanations. The examples are not too bad, but they concentrate too much on some recent events without enough evidence to substantiate, and without enough empirical research to back it up, other than with anecdotes.
We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.
Dr. Cabrales has published scholarly research which seems to be relevant to this Wikipedia article:
ExpertIdeasBot ( talk) 10:59, 28 May 2016 (UTC)
Dr. Barros has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:
It is generally ok. though the text could benefit from some reorganisation and editing for simplicity
We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.
Dr. Barros has published scholarly research which seems to be relevant to this Wikipedia article:
ExpertIdeasBot ( talk) 12:44, 7 June 2016 (UTC)
Dr. Krakel has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:
Due to the different fields of applications there are many redundancies. I think the first focus on finance is too large.
Who is John Nyman and why should some form of moral hazard be efficient?????????? I would like to see a more general definition (without focus on risk taking), for example, moral hazard = postcontractual opportunistic behavior.
See, e.g., Paul Milgrom and John Roberts (1992): Economics, Organization and Management. Prentice-Hall International Editions.
We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.
We believe Dr. Krakel has expertise on the topic of this article, since he has published relevant scholarly research:
![]() | This is an archive of past discussions. Do not edit the contents of this page. If you wish to start a new discussion or revive an old one, please do so on the current talk page. |
Archive 1 |
Are moral hazards the same thing as "perverse incentive"s? -- maru (talk) contribs 01:20, 8 July 2006 (UTC)
Following discussion with Bellemichelle here and on the discussion page for Morale hazard, we have agreed to consolidate the differing concepts here. In my edit today, I have separated the usage in economic theory from the usage in insurance. I think we have also agreed to merge morale hazard into this article, on the grounds that the concepts make more sense together than separately. -- RichardVeryard 10:49, 27 November 2006 (UTC)
I think moral hazard qualifies as an Anti-pattern. If consensus agrees, MH should be added as a list item there. (But is it organizational or social? Sometimes both. Sometimes even related to computer programming. *s*) This page should be added to the Category:Anti-patterns. Any other opinions? PhilipR 16:23, 14 February 2006 (UTC)
this part from above is incorrect:
"In economic theory, the term moral hazard refers to the possibility that the redistribution of risk (such as insurance which transfers risk from the insured to the insurer) changes people's behaviour. The term was introduced into economic theory by Kenneth Arrow in 1963."
The term Moral Hazard was used in sept 1905 By Everett Crosby in "Annals of the American Academdy of Poltical and Social Science, Vol 26 Insurance pp224-238. The title of the article was FIRE PREVENTION.
I doubt that even this was the first introduction of the term, but the fire prevention use is common in many example of the definition, so it may be the first popularized.
I can be contacted through my blog: http://tswe.blogspot.com/ Update the page as you find appropriate. I couldn't edit the part of the page where the error was.
—Preceding unsigned comment added by 206.210.27.33 ( talk • contribs) (Moved by PhilipR 19:46, 19 December 2006 (UTC))
Thanks for moving my comments to the talk area to be discussed.
I think the proper way to think of moral hazard - which I don't think is different from morale hazard -- is a the uncertanty principle http://en.wikipedia.org/wiki/Uncertainty_principle with the uncertanty principle the act of measuring an event changes the event.
With moral hazard to act of insuring an event changes the probability that the event will occur.
The probability of occurance is determined before the existance of the insurance. Once insurance exists the model used to determine the probability of the occurance has changed. In the insurance industry they are only concerned when the change makes the event more likely to occur but there is nothing that says it must change the risk in that manner.
Does anyone know of a term used for an change that makes the event less likely to occur. If not moral hazard could be used for change either way.
BTW: this is the link to the Everett Crosby article.
http://links.jstor.org/sici?sici=0002-7162(190509)26%3C224%3AFP%3E2.0.CO%3B2-G
Also is there a way to set a talk to e-mail me once someone else updates it ?
This link calls Moral Imperitive the oppostie of moral hazard.
http://links.jstor.org/sici?sici=0022-4367(198803)55%3A1%3C101%3AMHAMI%3E2.0.CO%3B2-8
I am confused by the first paragraph, which refers to actions interpreted differently by two parties due to asymmetric information, and the bulk of the remainder of the article, which deals more with risky behavior arising from risk transfer. How does the latter derive from the former? A sentence explaining the connection would be helpful.
-cas —Preceding
unsigned comment added by
148.87.1.170 (
talk)
16:07, 12 September 2007 (UTC)
Sorry, just a layman here. I find the first paragraph of this article misleading. I think in common parlance moral hazard means a tendency to take undue risks because the costs are not borne by the party taking the risk. They believe someone else will bear the costs/pick up the pieces/cover their a$$. I came here looking for verification of common usage and instead got a bunch of gibberish [?] about morality.
Cbmccarthy 21:43, 18 September 2007 (UTC)
The final paragraph is still an example of a breakdown of insurance. The person is pursuing healthcare that costs more than his willingness to pay, thus leading to an inefficiency. —Preceding unsigned comment added by 141.152.168.23 ( talk) 17:12, 26 November 2007 (UTC)
Moral hazard is a concept developed early in the days of risk pooling that is the basis for both corporations and of insurance. Somewhere I read something that associates the date of the term as originating circa 1600. The term is in reference to a general class of behavior, moral being the term of the time, where a party seeks to join the risk pool in order to effectively defraud the pool. As the risk pooling was forming a group to fund a ship to go trade with the group pooling the cost, the risk, and the profit if any existed. Insurance was the derivative that evolved - for a premium, the insurance pool would repay the losses without putting up the capital, eg., a ship would be insured without the insurer buying the ship. The moral hazard was an alleged ship owner and captain getting funded for a voyage with the investors insured, and then the captain never returning with his ship or the cargo, and the ship owner collecting for the presumed loss of the ship. By the same token, allowing people to buy insurance only when they have an imminent loss is a moral hazard.
What I find to be a gross distortion is to claim that the fact that one has insurance and will suffer a loss which the insurance will mitigate results in a moral hazard. The argument is that if you don't have insurance, you won't suffer a heart attack becuase you would suffer a loss, but with insurance, you will chose to suffer a heart attack because the insurer will pay for the treatment and you will profit from your suffering the pain and suffering of the heart attack because you lose nothing by having the heart attack.
Further, until the time that the distorted description of moral hazard was invented, insurers were proactive in reducing risk; fire insurers sought to expand fire departments, hydrants, and create building codes, and so on to both eliminate the hazard as well as reduce the loss when the fires that couldn't be prevented occurred. Communities that cooperatively provided for health care also sought to reduce the risks to community health and in the workplace.
Ok, I'm straying from the purpose, but what I'm arguing is that the term moral hazard has changed in meaning as the purpose of insurance has been called into question. It is this history of the term that needs to be documented. Does anyone have an OED which provides references to the use of the term moral hazard historically. It would probably provide the authoritative first use references.
In looking at my hardcopy britanica circa mid-80s, it defines three types of insurance hazards, moral, psychological, and physical. Moral is described as above, while the description of psychological is what the main article describes: "a pyshological hazard exists when unconsciously behaves in a way as to engender loss." It further says some people seem to be accident prone, suggesting they want the insured event to occur. Physical hazard is fire insurance for a wood building. So, it seems that who ever raised moral hazard to its common usage today was ignorant of the well established meanings of moral, psychological, and physical hazard. Mulp ( talk) 18:22, 11 August 2009 (UTC)
"Investors bought securities and hedged against the risk of default and prepayment, pushing those risks further along." Would someone please explain how prepayment is risk? As I see it, if a loan is prepaid, then the money comes back to the lender sooner and can be loaned out again. 75.45.2.84 ( talk) 23:54, 27 April 2008 (UTC)JH
"A special case of moral hazard is called a principal-agent problem," -- Shouldn't it be the other way around? radek ( talk) 03:38, 20 September 2008 (UTC)
The following language in paragraph 9 is a direct quote from a right-wing blogger named James A. Donald. "which means that there is no one person responsible for verifying that any one particular loan is sound, that the assets securing that one particular loan are worth what they are supposed to be worth, that the borrower responsible for making payments on the loan can read and write, that he speaks the language that the papers that he signed were written in, that he was sufficiently sober when he signed them to remember signing them, or even that the paperwork exists and is in good order." I have no problem with the quote (though I don't share Donald's politics at all). But should we not attribute it? n. b. I believe that it is short enough for "fair use" to apply. Of course, the possibility does exist that Donald himself got it from somewhere, but Donald is as far back as I can trace it. ```` —Preceding unsigned comment added by Howard-Hedger ( talk • contribs) 22:15, 20 May 2009 (UTC)
I noticed a sudden change in tone from "encyclopedic" to "opinionated comment on current affairs" at this para (5th of the In Finance section), which continued over the following two paras. In the 6th para, there's even an unsubstatiated (but of course possibly true) accusation of reckless cronyism: "The data that the regulators focused on was more relevant to politically mobilizing voting blocks in particular electorates than to keeping the financial system solvent." Then in the 7th para, opinion on the cause of the 2007/8 subprime mortgage crisis continues without substantiation or objectivity. This tarnishes the remainder of the article, and it also becomes rambling and unfocused at this point. BobBriscoe ( talk) 19:11, 28 August 2009 (UTC)
"On the other hand, some may be more careful about maintaining their health if they do not need to pay for health care, because paying for health care could be too financially burdensome."
Um... what? If someone does need to pay for health care, they will be careful about maintaining their health. This is the opposite. 193.95.165.190 11:42, 8 November 2007 (UTC)
A somewhat related effect lies in the area now known as Human Factors Engineering, in which machines are designed according to ergonomic principles such as "Murphy-proofing". Under this principle, the operator will find it easy to operate correctly, and difficult to operate incorrectly; and if possible, errors will tend to be benign or "soft failures". There is a long-term consequence of such designs, however, summarized by:
"The ultimate result of shielding men from the effects of folly is to fill the world with fools."
(Herbert Spencer 1820-1903) —Preceding unsigned comment added by Nuance 4 ( talk • contribs) 21:36, 27 December 2009 (UTC)
I don't dispute that moral hazard may arise in situations in which there is information symmetry, and in fact is more likely to arise if the risk takers can keep their actions hidden, but I do dispute that this is a requirement for the concept to apply and that "moral hazard would not arise under perfect information" because "risky behavior would be punished". There is no reason to assume that in general the parties negatively impacted by morally hazardous risk taking are capable of meting out such punishment, even under perfect information. And if they could punish risky behavior, it is not necessarily rational for them to choose to exercise that capability. Think, for example, of Professional indemnity insurance. The insurer could in theory (attempt to) deny claims if the claim is due to the policy holder's professional negligence, but then they would soon be out of business. -- Lambiam 15:01, 17 August 2010 (UTC)
Anybody? Seems like it's worth a mention with a link to a complete article, but many sentences are spent explaining in detail (with biased language) exactly what happened. This is an article about moral hazard, not about particular instances of it. —Preceding unsigned comment added by 24.69.150.231 ( talk) 05:49, 5 June 2010 (UTC)
I took out the end of the finance part, specifically the 'too big too fail' part. The part I have the biggest problem with was the idea that 'good sound regulation' could stop moral hazard. Moral Hazard occurs because the potential downside is systemic risk. An institution knows its own failure would create systemic risk while regulators may not. This is a reality and no amount of regulation can solve this information asymmetry.
Zeppelin55 (
talk)
03:15, 20 March 2011 (UTC)
According to modern economic theory, moral hazard is a widespread phenomenon, resulting from situations of information asymmetry in which unobserved actions may occur. Important situations in which it may arise include insurance (when people who have insurance act in riskier ways), employment (when the employer cannot precisely observe the choices made by the employee), management (when owners or shareholders cannot perfectly observe the choices made by the manager), and finance (when institutions insured by the government choose to make riskier investments). The application of moral hazard that is currently controversial in the press and in political debates is its role in finance. But from the point of view of economic theory, all these types of moral hazard are important. The page should be reweighted so that it does not appear to imply that finance is the main application of moral hazard. Rinconsoleao ( talk) 10:18, 17 August 2010 (UTC)
— 64.252.166.207 21:39, 29 December 2006 (UTC) Two additional examples I'd like to submit for review relate to the tobacco industry and the utility industry. Tobacco companies have inflicted direct costs on the health care system for years and have escaped the 'true' burden of these costs. And utility companies have contributed to global warming and pollution that have led to costly 'cleanup' efforts and health problems. And like the tobacco companies, they have not had to bear the costs resulting from their direct actions. The developing CO2 market is an attempt to capture a portion of these costs and reward positive behavior. 64.252.166.207 21:39, 29 December 2006 (UTC)
(Seems that the tobacco industry has somehow usurped the personal choice of tobacco users. Is there no consideration given to the early deaths from tobacco consumption serving to relieve the health care system from late-stage health management? Yours seems to be an unmeasured and biased position. TargetDriver) — Preceding unsigned comment added by 74.215.69.121 ( talk) 13:29, 27 May 2012 (UTC)
-Should tenure for university professors added to the list of "management" hazards? — Preceding unsigned comment added by 206.230.179.161 ( talk) 17:22, 11 February 2013 (UTC)
Great article! Direct, succinct, no funny words. I've never seen anything this good on Wikipedia, but I seriously hope it is the way of the future. People shouldn't comment like this normally, but it needs to be said: Write like this. — Preceding unsigned comment added by 108.173.100.24 ( talk) 04:50, 12 April 2013 (UTC)
I am very perplexed when I see morale hazard used to support an increase in insurance costs. The argument I've heard is that if you have fire insurance, you're not going to do as much as you could to prevent your house from burning down. We're not talking about arson or some other insurance fraud. Those are extremes activities that are punished in other ways. The argument as stated makes no sense to me because that seems to be what an insurance company is selling: peace of mind. At least that's what their ads target (besides the fact that they're required by law). But if the economics is calculated out to be a perfect transaction (the insurer is paid the cost of the insured risk times the chance of the risk occurring) there is no reason for the insured to pay more than that, which is the extra amount insurance currently charge to make money (otherwise, in the grand scheme of things, the perfect transaction would only allow the insurer to break even). The extra money is being paid for the peace of mind. So you don't go absolutely nuts when the house you took a lifetime to buy burns to the ground. There is already a compulsion to avoid the disaster: besides the horror of seeing your worldly possessions go up in flames, not to mention the risk to life, there are the externalities that the insured loses out of pocket. If someone can help me figure out how morale hazard is a problem for insurance companies, I would be really grateful.
Actually, "moral" hazard arises from intentional destruction to collect from the insruance company or the exaggeration of real claims in order to collect more from the insurance company. "Morale" hazard arises from a persons increased indifference because of the existance of the insurance product. TomPurdue 19:39, 5 September 2006 (UTC)
There really is such a thing as "morale hazard", and it's a separate but related concept. I'm not an expert, but I do know that moral hazard is not necessarily intentional destruction. So I've removed this text and added a link to stub for "morale hazard".
In insurance, at least, the two need to be distinguished. From "Property and Liability Insurance Principles", by Ludhard & Wiening (published by the AICPCU):
Moral hazards are conditions that may lead a person to intentionally cause or exaggerate a loss. The threat from moral hazard is the possibility that the insured may intentionally cause a loss or file a false claim. For example, an insured may intentionally cause a fire or an auto accident to collect a claim payment on a building or car and unjustly enrich himself or herself. Attitudinal hazards, also known as morale hazards, involve carelessness, or indifference to, potential loss on the part of an insured or applicant. Such hazards are more subtle and thus more difficult to detect than are moral hazards. A particularly dangerous attitudinal hazard is an insured's attitude that "I don't need to be careful because I have insurance."
I think that illustrates my point well and shows they are two seperate concepts. Bellemichelle 15:02, 11 October 2006 (UTC)
A Glazier who pays someone to smash windows, thus creating business for the Glazier.
Joe drives very carefully since he is uninsured, after he buys insurance he drives very recklessly since he knows the insurance will pay for damages.
Discussion on making the three different concepts clearer on the Morale Hazard talkpage - here. Jonpatterns ( talk) 17:22, 21 April 2015 (UTC)
Dr. Guha has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:
1.Economists distinguish moral hazard from adverse selection, another problem that arises in the insurance industry, which is caused by hidden information rather than by hidden actions.
Add "Akerlof (1970) showed how both problems could combine to cause market collapse, using the market for secondhand cars (lemons) as an example." Cite Akerlof, George (1970) "The Market for Lemons: quality uncertainty and the market mechanism." Quarterly Journal of Economics, 85, 488-500.
2.A second example is the case of a bank making a loan to an entrepreneur for a risky business venture. The entrepreneur becoming overly risky would be ex-ante moral hazard, but willful default (wrongly claiming the ventured failed when it was profitable) is ex-post moral hazard. Add "An instance where asymmetries of information create moral hazard occurs when a buyer cannot assess the quality of goods that he is buying on inspection. This provides the seller with a moral hazard to sell him substandard goods, passing them off as high-quality products (see Guha(2016))." Please cite:
Guha, Brishti (2016) "Moral Hazard, Bertrand Competition, and Natural Monopoly", MPRA working paper no. 70966.
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ExpertIdeasBot ( talk) 16:33, 19 May 2016 (UTC)
Dr. Cabrales has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:
This is OK, but it is way to discursive. It would benefit from a bit more technical explanations. The examples are not too bad, but they concentrate too much on some recent events without enough evidence to substantiate, and without enough empirical research to back it up, other than with anecdotes.
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ExpertIdeasBot ( talk) 10:59, 28 May 2016 (UTC)
Dr. Barros has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:
It is generally ok. though the text could benefit from some reorganisation and editing for simplicity
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ExpertIdeasBot ( talk) 12:44, 7 June 2016 (UTC)
Dr. Krakel has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:
Due to the different fields of applications there are many redundancies. I think the first focus on finance is too large.
Who is John Nyman and why should some form of moral hazard be efficient?????????? I would like to see a more general definition (without focus on risk taking), for example, moral hazard = postcontractual opportunistic behavior.
See, e.g., Paul Milgrom and John Roberts (1992): Economics, Organization and Management. Prentice-Hall International Editions.
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