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Moral Hazard in Health Insurance$
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Amy Finkelstein

Print publication date: 2014

Print ISBN-13: 9780231163804

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231163804.001.0001

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Moral Hazard in Health Insurance

Moral Hazard in Health Insurance

Developments Since Arrow (1963)

(p.13) Moral Hazard in Health Insurance
Moral Hazard in Health Insurance

Amy Finkelstein

Columbia University Press

This chapter examines economics professor Amy Finkelstein's lecture of the economics of moral hazard in health insurance, with respect to economist Kenneth J. Arrow's “Uncertainty and the Welfare Economics of Medical Care.” According to Finkelstein, the literature of moral hazard branches into two—ex ante moral hazard and ex post moral hazard—with the latter being usually considered. The concept of ex ante moral hazard is described as the deliberate exercising of an unhealthy lifestyle while aware that he is covered by a health insurance; while the idea of the ex post moral hazard states that at a given level of health, a person may choose to consume more medical products and services because the prices would be lower. Ex post connotes the price sensitivity of demand for medical care. The chapter considers two notable experiments, namely, RAND Health Insurance Experiment and Oregon Health Insurance Experiment as it turns the focus on just how many people will spend on medical care.

Keywords:   Amy Finkelstein, moral hazard, health insurance, Kenneth J. Arrow, Uncertainty and the Welfare Economics of Medical Care, ex ante moral hazard, ex post moral hazard, price sensitivity, RAND Health Insurance Experiment, Oregon Health Insurance Experiment

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