Under the standard definition, moral hazard is the change in behavior brought about by having insurance....

Under the standard definition, moral hazard is the change in behavior brought about by having insurance. The term “moral hazard” suggests that this change in behavior is “bad.” Why might we think that some of the behavior change caused by having health insurance, for example, is actually a good thing?

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Expert Solution

moral hazard is a term associated with the increase in the risk associated with the uncertain event especially when a person is insured. it is refered as a behavioural augmentation when an event occurs.In health insurance market, when the individual doesnot incur any costs by associating with a risky event then moral hazard occures.

The good thing in this asymmetric information scenario is the fact that health insurance providers requires the individuals to pay for the services they receive in the form of co pay and deductibles. Such policy incentives abtrain the individuals from making false claims and not deviating after paying a fixed amount.

Rahul Sunny answered 1 year ago

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