Talk:Moral hazard

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Arson[edit]

"Many, perhaps most, police investigations of arson are the result of leads from suspicious insurance adjusters." I'm curious - where was this taken from? I'm not doubting its validity, just pondering upon the origins of its source.



I do not understand. Please give an example of a moral hazard.


Re: "It could be argued along the same lines that military spending increases the risk of war." I don't see this logic, and don't see how it fits under moral hazard. It would make sense if (a) the military was given money based on how many wars it fought, and (b) it was the military which decided whether to go to war. But (a) is not what is said-- it's not military spending that matters, but rather the tying of spending to war (in the same way that welfare is tied to number of children); to illustrate, even if military spending were presently zero, the incentive for war would exist. As for (b), it is just false. The military is given orders by the government, not vice versa. The exception would be the case of a military gov't, but in that case it pretty much can take as much money as it wants anyway. Perhaps one could argue that the military once deployed might try to provoke a greater conflict to get more money, though this really seems a stretch. I think this example needs to be struck or greatly retooled. -- VV 21:39, 19 Sep 2003 (UTC)

The purchase of weapons is a sunk cost that removes or reduces one disincentive to belligerent and provocative behaviour. We got all of these bombs and guns lying around. Do we just let 'em rust, or do we shoot something? OTOH, if they weren't already stockpiled, they would have to first be acquired before a belligerent plan could be carried out. So even if the army is not paid on a piecework basis, and even if it is civilian leaders who decide whether to go to war or not, the purchase of weapons still creates a moral hazard of warlike activity. -- Smerdis of Tlön 23:53, 19 Sep 2003 (UTC)

I agree that the military example is misleading. Military expenditure facilities perverse behaviour, but doesn't induce it. I think the inducement is the critical component of moral hazard. -- RyanCastle

^ That's so incorrect on a number of levels.

moral hazard vs morale hazard[edit]

In the insurance field, morale hazard can better be seperated from moral hazard, according to a textbook written by Rejda, George E., Principles of Risk Management and Insurance.

Moral hazard refers to dishonesty. For an example taken from the article, if someone is operating a failing business and decides that they'd rather have the cash from the insurance proceeds on the buildings, the term moral hazard is used.

morale hazard refers to carelessness due to presence of insurance protection. Example taken from the article would be automobile driver (with insurance protection) drive less cautiously.

Dr. Guha's comment on this article[edit]

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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Dr. Guha has published scholarly research which seems to be relevant to this Wikipedia article:


  • Reference : Brishti Guha, 2005. "The Case of the Errant Executive : Management, Control and Firm Size in Corporate Cheating," Working Papers 16-2005, Singapore Management University, School of Economics.

ExpertIdeasBot (talk) 16:33, 19 May 2016 (UTC)

Dr. Cabrales's comment on this article[edit]

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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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Dr. Cabrales has published scholarly research which seems to be relevant to this Wikipedia article:


  • Reference : Antonio Cabrales & Gary Charness & Marie-Claire Villeval, 2006. "Competition, Hidden Information, and Efficiency: an Experiment," Working Papers 0605, Groupe d'Analyse et de Theorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Universite Lyon 2, Ecole Normale Superieure.

ExpertIdeasBot (talk) 10:59, 28 May 2016 (UTC)

Dr. Barros's comment on this article[edit]

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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Dr. Barros has published scholarly research which seems to be relevant to this Wikipedia article:


  • Reference 1: Barros, Pedro Luis Pita & Machado, Matilde Pinto & Sanz-de-Galdeano, Anna, 2006. "Moral Hazard and the Demand for Health Services: A Matching Estimator Approach," CEPR Discussion Papers 5488, C.E.P.R. Discussion Papers.
  • Reference 2: Aida Isabel Tavares & Pedro Pita Barros, 2011. "Ex-ante Moral Hazard and Primary Prevention, evidence from Portugal," Working Papers de Economia (Economics Working Papers) 56, Departamento de Economia, Gestao e Engenharia Industrial, Universidade de Aveiro.

ExpertIdeasBot (talk) 12:44, 7 June 2016 (UTC)

Dr. Krakel's comment on this article[edit]

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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We believe Dr. Krakel has expertise on the topic of this article, since he has published relevant scholarly research:


  • Reference : Krakel, Matthias & Muller, Daniel, 2013. "Merger Efficiency and Managerial Incentives," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 410, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

ExpertIdeasBot (talk) 18:56, 26 July 2016 (UTC)