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What is Moral Hazard

Chapter 5
Evaluating Challenges and Opportunities for Healthcare Reform
A change in one’s behavior due to shifting incentives that reallocate risk to other parties.
Published in Chapter:
The Economics of Health: An Overview of the American Healthcare System
Sean Michael Haas (The University of Texas at Dallas, USA), Sanjana Janumpally (The University of Texas at Dallas, USA), and Brendan Lamar Kouns (The University of Texas at Dallas, USA)
Copyright: © 2020 |Pages: 25
DOI: 10.4018/978-1-7998-2949-2.ch005
Abstract
The American healthcare system is vast and complex. An overview of the United States' healthcare system provides a view into the interrelated dynamics between three categories of factors: consumers, intermediaries, and providers. Consumers demand health inputs in order to produce health status that allows them to live productive lives. Intermediaries, such as insurance companies and government programs, reduce the direct cost of healthcare for consumers. Providers, such as hospitals and physicians, amongst others, have historically exhibited a degree of monopolistic power in the healthcare market. The modern trend towards managed care organizations, firms that vertically integrate multiple aspects of the healthcare market, aims to reduce costs imposed by such providers.
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Chapter 12
Joint Liability Lending, Entrepreneurial Development, and Poverty Reduction
Moral hazard occurs after the money has been disbursed to the borrower and it arises out of the fact that the borrower may have an incentive to breach the loan covenants by investing in “immoral projects” which are unacceptable in the eyes of the borrower because inasmuch as they have a high possibility of gain to the borrower, they also have a high possibility of failure which will have the most detrimental effect on the lender. Information asymmetry causes moral hazard because of the lender’s lack of knowledge about the borrower’s activities.
Published in Chapter: Joint Liability Lending, Entrepreneurial Development, and Poverty Reduction; From: Handbook of Research on Digital Marketing Innovations in Social Entrepreneurship and Solidarity Economics
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Chapter 47
Knowledge and Intellectual Property Rights: An Economics Perspective
Concerns the problem of hidden effort, which can result in increased risk of a negative outcome because the person who caused the problem does not suffer the full cost of that lack of effort.
Published in Chapter: Knowledge and Intellectual Property Rights: An Economics Perspective; From: Encyclopedia of Knowledge Management, Second Edition
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Chapter 17
Visualizing Indicators of Debt Crises in a Lower Dimension: A Self-Organizing Maps Approach
The lender is predisposed to the risk that the borrower can alter their behavior after the transaction has taken place, and thus the borrower’s probability of default might increase. Moral hazard is mostly a problem of asymmetric information and appears after money has been lent. However, high costs for recovering a debt by an enforcement order might make it, even though the lender is fully informed about the borrower’s activities, too costly to prevent moral hazard. Hence, asymmetric information is not necessarily the source of moral hazard.
Published in Chapter: Visualizing Indicators of Debt Crises in a Lower Dimension: A Self-Organizing Maps Approach; From: Handbook of Research on Computational Science and Engineering: Theory and Practice
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Chapter 12
Transaction Cost Approach to the Outsourcing Decision Problem
It is an asymmetric information problem that occurs as a result of the secret actions that take place after the contract is signed.
Published in Chapter: Transaction Cost Approach to the Outsourcing Decision Problem; From: Comparative Approaches to Old and New Institutional Economics
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Chapter 3
Predicting Global Financial Meltdown and Systemic Banking Failure: An Assessment of Early Warning Systems (EWSs) and Their Current Relevance
Is a phenomenon resultant from the problem of asymmetric information that occurs post-economic transaction when a potential lender or investor is held subject monetarily to the uncertainties and vagaries of borrower or entrepreneur behaviour, or has accepted to invest money regardless of the hazard , or the off-chance that the borrower in question has incentives to engage in activities and behaviours that are wholly undesirable , unproductive , or even immoral from the point of view of a venture capitalist; in that any indulgence therein makes it that much less likely that a loan will be repaid.
Published in Chapter: Predicting Global Financial Meltdown and Systemic Banking Failure: An Assessment of Early Warning Systems (EWSs) and Their Current Relevance; From: Handbook of Research on Financial and Banking Crisis Prediction through Early Warning Systems
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Chapter 87
The Role of Information in Decision Making
Moral hazard concerns the problem of hidden effort, which can result in increased risk of a negative outcome because the person who caused the problem does not suffer the full cost of that lack of effort.
Published in Chapter: The Role of Information in Decision Making; From: Encyclopedia of Decision Making and Decision Support Technologies
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Chapter 4
To Teach Leadership Ethically or to Teach Ethical Leadership?: Leadership Education in the Polish Executive Education Context
A situation when individuals (or organizations) make a decision to take more risk than normally expected because they are shielded from the negative consequences of their actions.
Published in Chapter: To Teach Leadership Ethically or to Teach Ethical Leadership?: Leadership Education in the Polish Executive Education Context; From: Handbook of Research on Ethics, Entrepreneurship, and Governance in Higher Education
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Chapter 39
Costs and New Technologies in Healthcare Delivery
In economic theory, moral hazard refers to the postcontractual opportunism that results from an asymmetric information. It occurs when the actions contractually required are not freely observable; for example, a party takes an inappropriate action or decision that can affect the outcomes of the contract. In insurance, moral hazard refers to the tendency of people to change their behavior when they are insured; it does not induce the insured to protect him/herself from the risk.
Published in Chapter: Costs and New Technologies in Healthcare Delivery; From: Encyclopedia of Healthcare Information Systems
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Chapter 15
Joint Liability Lending, Entrepreneurial Development, and Poverty Reduction
Moral hazard occurs after the money has been disbursed to the borrower and it arises out of the fact that the borrower may have an incentive to breach the loan covenants by investing in ‘immoral projects’ which are unacceptable in the eyes of the borrower because inasmuch as they have a high possibility of gain to the borrower, they also have a high possibility of failure which will have the most detrimental effect on the lender. Information asymmetry causes moral hazard because of the lender’s lack of knowledge about the borrower’s activities.
Published in Chapter: Joint Liability Lending, Entrepreneurial Development, and Poverty Reduction; From: Handbook of Research on Social Entrepreneurship and Solidarity Economics
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Chapter 1
Deposit Insurance: Pre-Emptive Expediency Against Bank Runs or Propulsion of Moral Hazard? Economic and Political Implications in India
A phenomenon that guides one party in a transaction to take risks, motivated by the fact that the costs of such actions shall be borne by another party.
Published in Chapter: Deposit Insurance: Pre-Emptive Expediency Against Bank Runs or Propulsion of Moral Hazard? Economic and Political Implications in India; From: Maintaining Financial Stability in Times of Risk and Uncertainty
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Chapter 172
Project Appraisal Techniques
The possibility that unethical decisions will be taken because those responsible for making a choice (between project options in this case) are not exposed to the full consequences of their actions.
Published in Chapter: Project Appraisal Techniques; From: Encyclopedia of Business Analytics and Optimization
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Chapter 131
Patients and Physicians Faced to New Healthcare Systems
In economic theory, moral hazard refers to the postcontractual opportunism that results from an asymmetric information. It occurs when the actions contractually required are not freely observable; for example, a party takes an inappropriate action or decision that can affect the outcomes of the contract.
Published in Chapter: Patients and Physicians Faced to New Healthcare Systems; From: Encyclopedia of Healthcare Information Systems
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Chapter 119
Online P2P Lending: Factors, Behaviors, and Mechanisms
The phenomenon that people make more risk decision when there is information asymmetry between the two parts.
Published in Chapter: Online P2P Lending: Factors, Behaviors, and Mechanisms; From: Encyclopedia of E-Commerce Development, Implementation, and Management
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Chapter 12
Dating Banking and Currency Crises in Turkey, 1990-2014
The fact that one person or institution takes excessive risks because someone else bears the burden of those risks. Moral hazard generally occurs under the asymmetric information framework.
Published in Chapter: Dating Banking and Currency Crises in Turkey, 1990-2014; From: Handbook of Research on Financial and Banking Crisis Prediction through Early Warning Systems
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Chapter 166
Microeconomic Aspects of E-Commerce
A situation in which one party in an economic transaction can take actions unobserved by the other party and to the detriment of the other party’s welfare. Moral hazard can arise only in cases of asymmetric information.
Published in Chapter: Microeconomic Aspects of E-Commerce; From: Encyclopedia of E-Commerce Development, Implementation, and Management
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