Moral Hazard in a Mutual Health-Insurance System: German Knappschaften, 1867-1914

Timothy Guinnane and Jochen Streb

No 54533, Center Discussion Papers from Yale University, Economic Growth Center

Abstract: This paper studies moral hazard in a sickness-insurance fund that provided the model for social-insurance schemes around the world. The German Knappschaften were formed in the medieval period to provide sickness, accident, and death benefits for miners. By the mid-nineteenth century, participation in the Knappschaft was compulsory for workers in mines and related occupations, and the range and generosity of benefits had expanded considerably. Each Knappschaft was locally controlled and self-funded, and their admirers saw in them the ability to use local knowledge and good incentives to deliver benefits at low cost. The Knappschaft underlies Bismarck’s sickness and accident insurance legislation (1883 and 1884), which in turn forms the basis of the German social-insurance system today and, indirectly, many social-insurance systems around the world. This paper focuses on a problem central to any insurance system, and one that plagued the Knappschaften as they grew larger in the later nineteenth century: the problem of moral hazard. Replacement pay for sick miners made it attractive, on the margin, for miners to invent or exaggerate conditions that made it impossible for them to work. Here we outline the moral hazard problem the Knappschaften faced as well as the internal mechanisms they devised to control it. We then use econometric models to demonstrate that those mechanisms were at best imperfect.

Keywords: Health Economics and Policy; Political Economy; Public Economics (search for similar items in EconPapers)
Pages: 53
Date: 2009-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Moral Hazard in a Mutual Health Insurance System: German Knappschaften, 1867–1914 (2011)
Working Paper: Moral Hazard in a Mutual Health-Insurance System: German Knappschaften, 1867-1914 (2009)
Working Paper: Moral hazard in a mutual health-insurance system: German Knappschaften, 1867-1914 (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:yaleeg:54533

DOI: 10.22004/ag.econ.54533

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