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Third Party Moral Hazard And The Problem Of Insurance Externalities, Gideon Parchomovsky, Peter Siegelman
Third Party Moral Hazard And The Problem Of Insurance Externalities, Gideon Parchomovsky, Peter Siegelman
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Insurance can lead to loss or claim-creation not just by insureds themselves, but also by uninsured third parties. These externalities—which we term “third party moral hazard”—arise because insurance creates opportunities both to extract rents and to recover for otherwise unrecoverable losses. Using examples from health, automobile, kidnap, and liability insurance, we demonstrate that the phenomenon is widespread and important, and that the downsides of insurance are greater than previously believed. We explain the economic, social and psychological reasons for this phenomenon, and propose policy responses. Contract-based methods that are traditionally used to control first-party moral hazard can be welfare-reducing in …
Fear Assessment: Cost-Benefit Analysis And The Pricing Of Fear And Anxiety, Matthew D. Adler
Fear Assessment: Cost-Benefit Analysis And The Pricing Of Fear And Anxiety, Matthew D. Adler
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Risk assessment is now a common feature of regulatory practice, but fear assessment is not. In particular, environmental, health and safety agencies such as EPA, FDA, OSHA, NHTSA, and CPSC, commonly count death, illness and injury as costs for purposes of cost-benefit analysis, but almost never incorporate fear, anxiety or other welfare-reducing mental states into the analysis. This is puzzling, since fear and anxiety are welfare setbacks, and since the very hazards regulated by these agencies - air or water pollutants, toxic waste dumps, food additives and contaminants, workplace toxins and safety threats, automobiles, dangerous consumer products, radiation, and so …