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Estimating the tradeoff between risk protection and moral hazard with a nonlinear budget set model of health insurance

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  • Kowalski, Amanda E.

Abstract

Insurance induces a tradeoff between the welfare gains from risk protection and the welfare losses from moral hazard. Empirical work traditionally estimates each side of the tradeoff separately, potentially yielding mutually inconsistent results. I develop a nonlinear budget set model of health insurance that allows for both simultaneously. Nonlinearities in the budget set arise from deductibles, coinsurance rates, and stoplosses that alter moral hazard as well as risk protection. I illustrate the properties of my model by estimating it using data on employer sponsored health insurance from a large firm.

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  • Kowalski, Amanda E., 2015. "Estimating the tradeoff between risk protection and moral hazard with a nonlinear budget set model of health insurance," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 122-135.
    • Handle: RePEc:eee:indorg:v:43:y:2015:i:c:p:122-135
    DOI: 10.1016/j.ijindorg.2015.08.001
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    More about this item

    Keywords

    Risk protection; Moral hazard; Nonlinear budget set; Health insurance;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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