Moral Hazard Versus Moral Imperative

Publication Type

Journal Article

Publication Date

1988

Abstract

Moral imperative is the opposite of moral hazard. Thus, moral imperative is the drive for an individual to produce more safety when insured than when uninsured. The possibility of moral hazard and moral imperative always exists for any risk averse individual. The cost of safety production plays a critical role in determining the likelihood of moral imperative. The optimal coverage of insurance is shown to depend on the probability of hazards, the insurance premium, and the utility function. The incentives for safety production are shown to depend on the loss, the effectiveness of safety production, and premium loading.

Discipline

Business

Research Areas

Finance

Publication

Journal of Risk and Insurance

Volume

55

Issue

1

First Page

101

Last Page

117

ISSN

0022-4367

Identifier

http://www.jstor.org/stable/253283

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