Equity auctions with bidder moral hazard

Geoengineering is the deliberate modification of the climate system. It has been discussed as a technique to counteract changes expected as a result of Anthropogenic Global Warming (AGW). 1 Speculation has occurred that the possibility of geoengineering will reduce or delay efforts to mitigate AGW. This possible delay or reduction in mitigation has been described as ‘moral hazard’ by various authors. We investigate the definitions and use of the term ‘moral hazard’, and the related (but significantly different) concept of ‘morale hazard’, in relevant law, economic and insurance literatures. We find that ‘moral hazard’ has been generally misapplied in discussions of geoengineering, which perhaps explains unexpected difficulties in detecting expected effects experimentally. 2 We clarify relevant usage of the terms, identifying scenarios that can properly be described as moral hazard (malfeasance), and morale hazard (lack of caution or recklessness). We note generally the importance of correctly applying this distinction when discussing geoengineering. In conclusion, we note that a proper consideration of the risks of both moral and morale hazards allows us to easily segment framings for both geoengineering advocacy and the advocate groups who rely on these framings. We suggest mnemonics for groups vulnerable to moral hazard (Business as Usuals) and morale hazard (Chicken Littles) and suggest the development of an experimental methodology for validating the distinction thus drawn.

Purpose – The purpose of this paper is to understand farmers’ moral hazard in safe farming in China and quantify the degree to which farmers’ moral hazard is prevented by incentive or constraint means or their combinations. Design/methodology/approach – The logit model is used to analyze farmers’ moral hazard in safe farming and the effects of determinants by applying survey data of 560 vegetable and fruit farmers in China. Findings – The result reveals that farmers’ moral hazard in safe farming is prevented by a combination of incentives and constraints. Among incentive factors, profits from safe agro-products are verified to affect farmers’ moral hazard negatively, whereas the effect of safe certification subsidy is not clear. In constraint factors, production environmental supervision (PESUPV) and agricultural input supervision (AISUPV) have significant effects in reducing farmers’ moral hazard, whereas the effects of production process supervision and market access supervision are not clear. Further, the incentives from higher profits of safe agro-products play a greater role in the prevention of farmers’ moral hazard than the constraints from PESUPV and AISUPV. The results indicate that farmers’ moral hazard in safe farming is more likely to be prevented by incentives compared with constraints. Research limitations/implications – The study has some limitations that should be taken into account in future research. First, food safety incidents happen frequently in China, which caused widespread social concern. These affairs may spark a rethink for farmers about how to produce safe agro-products. From this prospective, farmers’ moral hazard in safe farming may be prevented by their social responsibility. However, the survey did not show it. This may be related to the beginning stage of safe farming in China. With the development of safe farming, the effect of social responsibility on the prevention of farmers’ moral hazard would constitute an interesting extension of the work. Second, the study focusses on farmers’ production of safe vegetables and fruits in three areas of China. Covering more activities and areas is likely to commit fruitful results. Originality/value – Based on the theoretical analysis of farmers’ moral hazard in safe farming through using a principal-agent model, the paper proposes hypotheses of incentives and constraints affecting farmers’ moral hazard in safe farming and verifies them through logit model with the survey data from 15 counties (or cities) in Jiangsu, Jiangxi and Sichuan Provinces of China. The result provides some evidences that farmers’ moral hazard in safe farming is simultaneously affected by a combination of incentives and constraints and may be taken as proofs for China's policy-making and focusses implementation in preventing farmers’ moral hazard in safe farming.

Claims Reporting and Risk Bearing Moral Hazard in Workers' Compensation Workers covered by workers' compensation insurance generate two types of moral hazard: moral hazard in which higher benefits induce workers to take more ex ante job risks given a higher level of ex post injury compensation and moral hazard in which higher benefits have no effect on actual injuries (risk is unchanged) but does induce more claims filings. In this empirical study of indemnity and medical trends the quantitative impact of these two types of moral hazard are separated. In our specifications a positive claims reporting moral hazard more than offsets the negative risk bearing moral hazard. The presence of claims reporting moral hazard suggests that even though workplace injuries may be declining over time (i.e., real safety has increased), reported claims will actually increase as real benefits increase. If changes in workers' compensation indemnity benefits (more generally, in any insurance coverage) affect workers' real or reported safety behavior then there is a classic moral hazard problem: the liability of the firm (or its insurer) is affected by actions of the workers about which the firm has incomplete information. In the absence of moral hazard effects, an increase in the expected indemnity payment will still increase expected costs in a naive acturial sense: when the expected weekly indemnity payment increases by 10 percent this increases expected costs by roughly 10 percent as long as the higher benefits do not induce any change in the real or reported behavior of the workers. However this one to one relationship between benefits and costs is broken when moral hazard is present. The worker's incentive to file a claim for any level of risk will increase as benefits rise since this lowers the cost (mostly in terms of forgone earnings) of being on a claim. This results in two types of moral hazard response: an increase in benefits will increase the propensity to file a claim either because the worker will be willing to undertake more risk than before and consequently more injuries will occur, or because the worker has a greater incentive to file a claim for any given level of risk (and its concomitant level of injuries). This article makes the first empirical distinction between the former real and the latter nominal types of moral hazard, presenting estimates of the empirical magnitude of each. Figure 1 provides the context for various types of incentive effects due to changes in the level of indemnity payments. Were the additional claim losses arising from higher benefits generated by the firm or by the worker? Did they represent a real change in safety behavior (risk bearing moral hazard) or did they simply reflect a greater propensity to report claims (claims reporting moral hazard)? While the real and nominal incentives facing the worker are mentioned above, note that the firm also faces similar incentives to alter its behavior. In terms of the nominal incentives of the firm, if experience rated, then higher benefits increase insurance costs on average. Consequently, the firm has an incentive to engage in nominal (and perhaps real) claims reduction practices. One way is simply by resisting more claims that arise (i.e., by discouraging claim filing without improving real safety conditions). Without experience rating, the firm faces no such nominal incentives, but may still have real incentives with respect to benefit increases.(1) Real firm effects exist when changes in the indemnity benefits affect the safety behavior of the firm. Higher levels of real benefits could conceivably increase safety. The argument is that as benefits increase, risk bearing is shifted from the worker to the firm and there are unrealized economies of scale in risk shifting. …

I Introduction IT IS WELL KNOWN that some parties to a contract who have an information advantage over the other parties may engage in post-contractual opportunistic behavior. This behavior is commonly known as moral hazard. In health-care insurance, moral hazard is usually associated with increased use of medical services after insurance (Pauly, 1968). Because the insurer usually cannot tell whether a treatment is motivated by actual need, or by lower marginal cost of services to the insured, there is room for the insured and the service provider to use more services than would be used without insurance. This information advantage on the part of the insured and the service provider thus determines the extent of moral hazard. The greater the information advantage is, the higher the cost of containing opportunistic behavior, and the greater the extent of moral hazard. When moral hazard cannot be costlessly eliminated, the interest of the insurer is adversely affected if he cannot cover easily his loss from the insured's overuse by increasing the premium. It is as if some property right of the insurer have been converted into de facto property right of the insured. The extent of this de facto right is defined by the level of successful moral hazard. In other words, the gap between the ideal interest of the insurer under perfectly enforced property right (i.e., without moral hazard) and his effective interest under imperfectly enforced property right (i.e., with moral hazard) represents competitively capturable resources (Fung, 1991). The higher the cost of containing moral hazard, the larger this pool of competitively capturable resources becomes. But these resources are likely to be lower in value than their equivalent market values to the insured because they must be captured in kind and not in cash. Therefore, the insured may be induced to give up his de facto property right in exchange for part of the competitively capturable resources, if such an exchange offers him greater utility. In turn, the insurer can keep the rest of the competitively capturable resources. This exchange, a benefit conversion, if successful, can make the insured better off and lower insurance premium for a given coverage. Deductibles and copayments are incentives designed to contain this de facto property right of the insured. Their effectiveness in curtailing moral hazard, however, is limited to minor illnesses (Zweifel, 1988). For major illnesses of a terminal and/or chronic nature, treatment levels typically extend beyond the reach of deductibles and coinsurance. Here, comparable incentives to contain the insured's de facto property right do not exist. Not surprisingly, aggressive treatments of major illnesses have contributed significantly to health-care cost explosion. This paper will look at a two-pronged incentive scheme that may curtail over-treatment and the spiralling of health-care costs in major illnesses. This scheme is based on a recognition of the insured's de facto property right to competitively capturable resources and the offer of a package of benefits that is more valuable, in some cases, to the insured than a futile resort to more medical treatment. II Budget Constraints of the Insured in Major Illnesses WITHOUT INSURANCE, moral hazard is absent because the limit to medical services is determined by the individual's income and the market price of medical services. This income-price budget constraint is represented by AA|prime~ in Figure 1. This individual's (say John's) income can be spent on up to |M.sub.2~ units of medical services and nothing else, or up to OA units of other goods and services (other goods for short) and no medical services, or any other consumption bundles of medical services and other goods along the budget constraint AA|prime~. The slope of the constraint reflects the price of medical services in terms of the amount of other goods that must be given up in exchange. …

In existing literature, moral hazard is often modeled as a constant. However, moral hazard can be “fuzzy” rather than “precisely defined.” As moral hazard is dynamic and variable, exhibiting both constancy and differentiation, its representation through fuzzy intervals—rather than fixed constants—has emerged as a meaningful research direction. This paper integrates fuzzy set theory into credit default analysis, combining moral hazard, fuzzy risk, and credit risk in a cross-disciplinary study to explore their intrinsic interdependencies. First, a novel default intensity model incorporating market state variables and moral hazard state variables is proposed. By accounting for the fuzzy risks inherent in trading environments, the moral hazard indicators are transformed into fuzzy intervals, thereby establishing interval-based moral hazard metrics to characterize default intensity. Subsequently, to address the phenomenon of default clustering caused by default dependence in markets, a circular default intensity model involving two reference assets is constructed. Within this framework, the cross-influence mechanisms of moral hazard and fuzzy risk are further investigated. Furthermore, the proposed model, which integrates moral hazard and fuzzy risk, is applied to derivative pricing. A new pricing formula for default management costs is derived. Finally, through comparative analysis and simulation experiments, the study concludes that: (1) Under the parameter settings representing economic stagnation, the triangular fuzzy interval of survival probability narrows progressively as the credibility parameter γ increases, eventually converging to a real number. (2) The cost of credit default management is significantly influenced by the number of reference assets. In trading environments where moral hazard, fuzzy risk, and credit risk intertwine, effective mitigation of their impacts on default risk requires strategic information utilization and reduction in the number of reference assets. This approach not only lowers credit management costs but also fosters the healthy development of financial markets.

Improved treatment makes it easier for individuals with mental illness to participate in mainstream society, including the labor force. Nevertheless, a diagnosis of a severe and persistent mental illness or a substance use disorder often coincides with reduced work activity and lower earnings. The Social Security Disability Insurance Program and the Supplemental Security Income program provide income support for increasing numbers of individuals with mental illness. A growing share of a third program, Temporary Assistance for Needy Families, which offers cash support to low-income single caregivers, is composed of individuals with mental illness, as new work requirements result in faster exits of those without mental health conditions. These programs have come under increasing scrutiny as the shares of recipients with mental illness increase. Some question whether these programs serve many individuals capable of working and supporting themselves. However, evidence on whether eligibility criteria for these income support programs are too stringent or too lax regarding individuals with mental illness is mixed. Appropriate income support policy for those with mental illness will differ dramatically depending on the source of the recent rise in individuals with mental illness using income support.

Financing is carried out by the Shari’ah Financial Institutions Party, both banks and non-bank financing is very vulnerable moreover financing mudharabah that is vulnerable to moral hazard or moral deviation (reckless). Moral hazard potential is huge because of the importance of each party. Thus in the moral problem hazard will be over who should deviate, why deviate and who is harmed as the result of certain actions. Therefore, the Shari'ah financial institutions should be able to minimize the risk of loss in these high-risk financing in order to obtain profit in line with expectations and get the blessing. Based on this, which becmes the subject of this research, the first that is how the implementation of financing mudharabah in sharia’ah cooperative Nuri of East Java (KSN JATIM) Plakpak of sub-district pegantenan pamekasan. And the second how to minimize the risk of moral hazard on mudharabah financing in Shari’ah cooperative Nuri of East Java (KSN JATIM). Its first aim to know the application mudharabah in KSN JATIM and second to know how to minimize the risk of moral hazard in KSN JATIM. This research is a kind of field research. Technique of data collection includes interviews, documentation, while the analysis technique of descriptive kualitatif. Data obtained will be analyzed and described overall from the phenomena occurring in the implementation of financing mudharbah and how to minimize the risk of moral hazard on mudharbah financing in Shari’ah Cooperation Nuri of East Java. Informant is managers and financing part employees as well as customers that use of financing mudharabah. The results of field research shows that: First, Implementation of financing mudharabah in KSN JATIM in its application was in accordance with Islamic Shari'a as fulfilled pillars of mudaraba, aqid, ma'qud alaih, and, sighat . Second, how to minimize the risk of moral hazard by KSN JATIM is, to know good character, honesty, character of the customer, the customer's business should develop, analyze 6C, doing oversight or monitoring to the customer's business both on desk monitoring, and on-site monitoring

Non performing loans (NPL) is an indicator of debtor’s inability in credit repayment which indicates the presence of asymmetric information that might cause moral hazard. This research aims to measure the level of moral hazard and its determinants of micro and small enterprises debtors of Bank Jateng which have NPL. The data were collected from 58 debtors who were selected using simple random sampling. Rating scale method was used to measure the level of moral hazard while regression was used to analyze variables determining moral hazard. The research found that (1) the level of debtor’s moral hazard tends to be medium-to-high, (2) bank monitoring, debtor’s age, and business size are significant variables determining moral hazard. Hence, the research suggests that (1) the bank needs to apply some specific treatments to debtors with high moral hazard, (2) bank monitoring needs to be increased thus debtors are not comfortable to carry out moral hazard, (3) young debtors tend to be more daring to do moral hazard hence it needs special attention and treatment to them, (4) the debtors with larger scale business have the potential to do moral hazard therefore treatment needs to be differentiated with the smaller ones.

In health insurance, "moral hazard" describes the concept that coverage without an out-of-pocket cost to consumers could result in health care utilization beyond economically efficient levels. In response, payers in the United States (US) have designed pharmaceutical benefit plans with significant cost exposure (e.g., co-pays, co-insurance, or deductibles). While substantial evidence links patient cost exposure to reduced drug spending, it remains unclear to what degree this translates into greater efficiency or an indiscriminate drop in overall consumption also reducing needed utilization. We conducted a systematic literature review to understand whether commonly implemented utilization management (UM) strategies and insurance designs with a behavioral or value-based (BID/VBID) component have been explored as tools to mitigate moral hazard and to assess how cost-sharing policies and innovative insurance designs impact consumer spending. Eligible studies compared conventional cost-exposure policies to BID/VBID, including tiered cost-sharing and other UM strategies. We found that broad implementation of patient cost exposure is not well supported by empirical evidence assessing efficiency-defined as the use of clinically appropriate services with value at or above the marginal cost of health care utilization in the contemporary US setting. As a result, payers and policy makers alike ought to explore insurance alternatives that more closely align health care consumption incentives to value of care.

This paper analyzes moral hazard problems in PPP (private-public-partnership) projects. Moral hazard is classified into two types: the special purpose company's (SPC) and the bank's moral hazard. In a regular tender process, the SPC's moral hazard cannot be deterred. A reserve tender system can do it better in deterring the SPC's moral hazard, though at the same time it might induce the bank's moral hazard. Furthermore, the SPC's moral hazard is triggered once the bank's moral hazard occurs. The paper concludes that the bank's monitoring is valid for the deterrence of the moral hazard of the SPC and the bank.

The term moral hazard generally implies individuals’ tendency to exercise less effort into cost reduction if the negative consequences resulting from their actions are not borne by themselves. This paper analyzes using recent experimental studies under which circumstances moral hazard is likely to occur and how this problem could be mitigated or eliminated. A detailed overview and analysis of field and laboratory experiments from different areas are provided. At first, a description of the experimental process is presented. The paper then concentrates on findings and, additionally, on the discussion of the ethodology. Overall, the results suggest moral hazard to be an important problem in many markets. However, it is found out that experts without personal financial incentives do not respond to customers’ insurance status. Besides, competition mitigates moral hazard on the supply side and evidence shows that moral hazard is less likely to occur in markets for natural disaster insurance where probabilities of damages are low. Additionally, peer pressure and pro-social preferences alleviate the problem of moral hazard in group schemes. Keywords: First-degree moral hazard; second-degree moral hazard; experiments; analysis.

Banking Union was a major policy response to the financial crisis that began in 2007 and the subsequent Eurozone crisis. Moral hazard has frequently been presented as a major cause of these crises. Therefore, Banking Union can be understood as a response to moral hazard in relation to banks and sovereigns. Yet, moral hazard was an acknowledged and supposedly managed problem prior to these events. Paradoxically, moral hazard has been used to justify contradictory policy options to safeguard European financial system stability, such as decentralized institutional arrangements for banking supervision but also a centralized system coordinated by the European Central Bank (ECB). To address this paradox, this paper investigates moral hazard as a political concept. Based on a comparison of how central bankers from the Bundesbank and the ECB understand and use the moral hazard concept, this paper argues that moral hazard is closer to the realm of politics than expertise.

OPINION article Front. Ecol. Evol., 29 January 2015Sec. Behavioral and Evolutionary Ecology Volume 3 - 2015 | https://doi.org/10.3389/fevo.2015.00003

In recent years, conservatives have promoted health savings accounts (HSAs) a way of addressing growing cost of health (Hubbard, 2006). HSAs were introduced under Medical Modernization Act of 2003 alternative to traditional health insurance (U.S. Department of Treasury, 2006, [paragraph] 1). They are at heart of an effort to replace our current system of with consumer-directed health (Robinson, 2005). In this article, I examine HSAs and consider their implications for social workers. open an HSA, an individual must first buy a high-deductible health plan (HDHP), which requires consumer to assume responsibility for at least first $1,050 in costs ($2,100 for families), up to a maximum of $5,250 ($10,500 for families) (U.S. Department of Treasury, 2006). (Claxton et al. [2005] found that average deductibles were $1,901 for individuals and $4,070 for families; two of three employers offering these plans contributed to workers' accounts.) HDHPs may offer preventive on a first-dollar basis, although they are not required to. Individuals with HDHPs establish HSAs, into which they can deposit money ... reap investment returns and withdraw money for eligible medical expenses, all tax-free (Ginsburg, 2004, p. 2). Employers also contribute to HSAs on behalf of their workers. Although number of individuals with HDHPs or HSAs is relatively small, experts believe this could increase (Claxton et al.). Advocates of HDHPs and HSAs believe health inflation is rooted in our system of employer-based and low-deductible policies, which insulate[s] people from cost of ... medical care and enables the vast majority of Americans to consume health as if it were free (Hubbard, 2006, p. 3). This is well-known theory of moral hazard, which assumes that if individuals buy a good for less than its market price, they will consume of it than they ordinarily would. To extent that this increase in use or spending arises from lower user price that health brings about, it is called 'moral hazard' (Pauly, 2004, pp. 113-114). HDHPs and HSAs seek to address moral hazard by giv[ing] consumers an incentive to spend wisely (Hubbard, p. 4). PROBLEMS WITH HSAS Unfortunately, there are problems, both theoretical and practical, with HSAs. begin with, Nyman (2004) pointed out, moral hazard is not necessarily inefficient, or welfare decreasing. Moral hazard occurs when third-party payments encourage individuals to buy more health than they would have purchased at normal market prices (p. 194). However, not all this spending is a welfare loss. Third-party payments enable individuals to obtain that they cannot afford but would buy if they had money. This is particularly true for patients needing more serious procedures, such organ transplants[,] ... trauma care, and many cancer treatments (p. 197). In these cases, subsidized actually represents a welfare gain. Advocates of HSAs assume that demand for health is infinite, that patients will consume much of it they can, whether they need it or not (Gladwell, 2005). This is questionable, however. For people, visiting a physician is not an enjoyable experience. As Reinhardt (cited in Gladwell) put it: You always hear that demand for health is unlimited. This is just not true. People who are very well insured, who are very rich, do you see them check into hospital because it's free? Do people really like to go to doctor? Do they check into hospital instead of playing golf? (p. 47) The answer seems obvious: Few if any people would frivolously choose to endure coronary bypass surgery just because price had dropped to zero (Nyman, 2004, p. 197). Advocates of HDHPs and HSAs also assume that we shop for health in same way we do for other goods, such automobiles or iPods. …

In this paper, we investigate how an electricity capacity market design may encourage generators to exaggerate their available capacity. In order for an analytical approach, a two player game model is introduced. We focus on two pure strategy Nash equilibria: an equilibrium at which generators offer their true capacities, and an equilibrium at which generators offer exaggerated capacities. The latter case is caused by asymmetries of information between players and so called 'moral hazard' in terms of the economics literature. This paper shows that, considering practical electricity markets, the moral hazard case is highly probable. Moreover, it is shown that, with the considered capacity market design in the real world, the better the electricity energy market performs, the higher the risk of moral hazard becomes.