A Note on Health Insurance under Ex Post Moral Hazard
In the linear coinsurance problem, examined first by Mossin (1968), a higher absolute risk aversion with respect to wealth in the sense of Arrow–Pratt implies a higher optimal coinsurance rate. We show that this property does not hold for health insurance under ex post moral hazard; i.e., when illne...
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| Format: | Article |
| Language: | English |
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MDPI AG
2016-10-01
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| Series: | Risks |
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| Online Access: | http://www.mdpi.com/2227-9091/4/4/38 |
| Summary: | In the linear coinsurance problem, examined first by Mossin (1968), a higher absolute risk aversion with respect to wealth in the sense of Arrow–Pratt implies a higher optimal coinsurance rate. We show that this property does not hold for health insurance under ex post moral hazard; i.e., when illness severity cannot be observed by insurers, and policyholders decide on their health expenditures. The optimal coinsurance rate trades off a risk-sharing effect and an incentive effect, both related to risk aversion. |
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| ISSN: | 2227-9091 |