 The Welfare Economics of Moral HazardRichard Arnott and Joseph Stiglitz Chapter 5 in Risk, Information and Insurance, 1991, pp 91-121 from Springer Abstract: Abstract It is now widely recognized that the phenomenon of moral hazard, which arises whenever risk-averse individuals obtain insurance and their accident-avoidance activities cannot be perfectly monitored, is pervasive in the economy.1 Since individuals do not bear the full consequences of their actions, incentives for accident avoidance tend to be less than if they did. This, in itself, does not imply that the market is (constrained) inefficient; to establish inefficiency, it needs to be shown that there is some intervention in the economy that would lead to a Pareto improvement. The object of this article is to show that, in general, whenever moral hazard is present, market equilibrium is indeed “potentially” inefficient (i.e., assuming no costs of government intervention). The inefficiencies associated with market equilibrium with moral hazard take on a number of different forms, and here we provide a taxonomy of these market failures. Keywords: Marginal Utility; Moral Hazard; Welfare Economic; Market Failure; Market Equilibrium (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-94-009-2183-2_5 Ordering information: This item can be ordered from DOI: 10.1007/978-94-009-2183-2_5 Access Statistics for this chapter More chapters in Springer Books from Springer |
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