Moral hazard and protection from losses
แนะนำใหม่| English | ความหมาย |
|---|---|
| moral hazard/ˈmɒrəl ˈhæzəd/ | ความเสี่ยงทางจริยธรรม |
| deductible/dɪˈdʌktɪbl/ | ค่าชดเชย |
A decision you can investigate
- After buying cover, a person may take fewer precautions if someone else now pays part of an accident’s cost. A bank may take greater risks if its decision-makers expect rescue.
- The relevant mechanism is the incentive change, not an accusation that every insured person behaves badly.
Build the explanation
- Moral hazard 道德风险 arises when protection from consequences changes incentives to take care or take risks. Hidden or costly-to-monitor actions can reinforce the problem. Consumers may reduce prevention; producers may take riskier decisions; workers’ effort or safety incentives can weaken under poorly designed protection; government may face larger expected claims or rescue costs.
- Insurance and banking also provide useful risk sharing and finance. Deposit protection can help confidence while expected rescue may weaken monitoring or encourage risky lending. Distinguish shareholders, managers, depositors, borrowers and taxpayers: they do not necessarily receive the same protection.
Work through the evidence
- A fictional precaution costs 30 and reduces accident probability from 10% to 2%; damage is 1000. Without cover, expected avoided loss=(0.10−0.02) × 1000=80, exceeding cost 30. With full cover and no premium response, the person avoids no out-of-pocket damage by taking the precaution.
- With a deductible 免赔额 of 200 per accident, expected avoided private loss=(0.10−0.02) × 200=16, still below cost 30 in this simplified risk-neutral case. A deductible therefore restores some incentive but does not necessarily restore enough. In banking, a decision that pays managers a bonus on an upside while losses fall on creditors or an expected public rescue can similarly separate private rewards from social risk.
What is expected avoided loss without cover?
ความยาก 1/5 · 100 เหรียญ + โบนัสเล็กน้อยในการทำครั้งแรกวันนี้
The probability reduction is 0.08; multiply by damage 1000.
Test the limits
- Real choices include risk aversion, inconvenience, injury not covered by money, premium changes, exclusions and legal duties. The numerical example is an incentive model, not advice about buying insurance.
- Monitoring, deductibles, co-payments, capital requirements and credible loss-sharing can help but create costs and may reduce access or valuable risk taking. A worker’s safety can depend on an employer’s equipment, not simply individual effort. Adverse selection concerns hidden types entering a contract; moral hazard concerns changed incentives under protection.
What private expected loss is avoided with the stated deductible?
ความยาก 1/5 · 100 เหรียญ + โบนัสเล็กน้อยในการทำครั้งแรกวันนี้
0.08 × 200 =16.
A small deductible may leave moral hazard largely in place.
ความยาก 1/5 · 100 เหรียญ + โบนัสเล็กน้อยในการทำครั้งแรกวันนี้
True. A deductible restores some incentive to take care, but whether behaviour changes depends on its size and the behavioural response.
Apply and explain your answer
- Why does the deductible fail to induce the precaution in the stated model?
- It raises avoided private loss to 16, but the precaution still costs 30; compare the person’s marginal private gain with cost.
Which banking arrangement can create moral-hazard incentives?
ความยาก 1/5 · 100 เหรียญ + โบนัสเล็กน้อยในการทำครั้งแรกวันนี้
Protection can separate the chooser’s private risk from wider consequences.
Use the terms precisely
- moral hazard: Protection from consequences changes incentives to take care or take risks.
- deductible: The amount of an insured loss borne by the policyholder before cover pays the remainder.
Match the terms to their meanings.
ความยาก 2/5 · 140 เหรียญ + โบนัสเล็กน้อยในการทำครั้งแรกวันนี้
Use each term for its stated economic relationship.
A fictional precaution costs 30 and reduces accident probability from 10% to 2%; damage is 1000. Without cover, expected avoided loss=(0.10−0.02) × 1000=80, exceeding cost 30. With full cover and no premium response, the person avoids no out-of-pocket damage by taking the precaution. With a deductible of 200 per accident, expected avoided private loss=(0.10−0.02) × 200=16, still below cost 30 in this simplified risk-neutral case. A deductible therefore restores some incentive but does not necessarily restore enough. In banking, a decision that pays managers a bonus on an upside while losses fall on creditors or an expected public rescue can similarly separate private rewards from social risk.
Real choices include risk aversion, inconvenience, injury not covered by money, premium changes, exclusions and legal duties. The numerical example is an incentive model, not advice about buying insurance. Monitoring, deductibles, co-payments, capital requirements and credible loss-sharing can help but create costs and may reduce access or valuable risk taking. A worker’s safety can depend on an employer’s equipment, not simply individual effort. Adverse selection concerns hidden types entering a contract; moral hazard concerns changed incentives under protection.
Moral hazard arises when protection from consequences changes incentives to take care or take risks. Hidden or costly-to-monitor actions can reinforce the problem. Consumers may reduce prevention; producers may take riskier decisions; workers’ effort or safety incentives can weaken under poorly designed protection; government may face larger expected claims or rescue costs.
Write from a deductible of 100
- A precaution costs 40. It cuts accident probability from 20 percent to 5 percent. Damage is 500.
- Compare no cover with a deductible of 100. This is an incentive model, not advice to buy or refuse insurance.
A precaution costs 40 and cuts accident probability from 20 percent to 5 percent. Damage is 500. Why is the precaution worth taking with no cover, and why does a deductible of 100 fail to induce it in this risk-neutral model?
The person compares private gain with the precaution's cost. Full cover can remove the private gain. A deductible restores only the stated part.
Why does the deductible fail to induce the precaution here?
ความยาก 1/5 · 100 เหรียญ + โบนัสเล็กน้อยในการทำครั้งแรกวันนี้
0.15 times 100 is 15, which is below 40. The 75 applies when the person bears the whole damage of 500.