The other ex ante moral hazard in health

Jay Bhattacharya and Mikko Packalen

Journal of Health Economics, 2012, vol. 31, issue 1, 135-146

Abstract: It is well-known that pooled insurance coverage can induce people to make inefficiently low investments in self-protective activities. We identify another ex ante moral hazard that runs in the opposite direction. Lower levels of self-protection and the associated chronic conditions and behavioral patterns such as obesity, smoking, and malnutrition increase the incidence of many diseases and consumption of treatments to those diseases. This increases the reward for innovation and thus benefits the innovator. It also increases treatment innovation which benefits all consumers. As individuals do not take these positive externalities into account, their investments in self-protection are inefficiently high. We quantify the lower bound of this externality for obesity. The lower bound is independent of how much additional innovation is generated. The results show that the externality we identify offsets the negative Medicare-induced insurance externality of obesity. The Medicare-induced obesity subsidy is thus not a sufficient rationale for “soda taxes”, “fat taxes” or other penalties on obesity. The quantitative finding also implies that the other ex ante moral hazard that we identify can be as important as the ex ante moral hazard that has been a central concept in health economics for decades.

Keywords: Self-protection; Prevention; Innovation; Health insurance; Obesity (search for similar items in EconPapers)
JEL-codes: D62 H23 I10 I18 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167629611001287
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Other Ex-Ante Moral Hazard in Health (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:31:y:2012:i:1:p:135-146

DOI: 10.1016/j.jhealeco.2011.09.001

Access Statistics for this article

Journal of Health Economics is currently edited by J. P. Newhouse, A. J. Culyer, R. Frank, K. Claxton and T. McGuire

More articles in Journal of Health Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().