Nyman's model

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Nyman's model was developed by John A. Nyman in 2003 and presents an alternative view of moral hazard in the context of private health insurance in the United States. Nyman is a professor of Economics at the University of Minnesota.

His theory proposes that private health insurance acts as an income transfer between the sick and the healthy. As a result, the more moral hazard there is, the more money available for income transfer to the people who really need it. In other words, moral hazard in the private health insurance industry makes health care more affordable. He counters the arguments that moral hazard is always welfare decreasing and that voluntary purchasing of health insurance makes people worse off. Moreover, the utility lost by the healthy via premiums is less than the utility gain by the sick who receive that income transfer.


  • Sannterre, Rexford E., and Neun, Stephen P. Health Economics: Theories, Insights, and Industry Studies. 4th ed. Thomas South-Western, 2007. 63-65, 142-46.