Moral Hazard Concept

The expression moral hazard designates a kind of market failure in which the existence of an insurance against a certain hazard increases the probability of occurrence of the event which originates that hazard. For example, a business establishment’s owner that is insured against theft can stop being so careful in the protection of the establishment given that the existence of insurance reduces the incentive for prevention. Another examples are the cases of health insurances with full coverage that, according to studies, have a strong impact in the resource of plastic surgeries or in the use of  residence health care, reason for which many insurance policies exclude these types of coverage.      

 

 

Translated from Portuguese by Susana Saraiva, Portuguese-English and English-Portuguese translation specialist. Contact: spams@sapo.pt.