Risk, Uncertainty and Moral Hazard: Comment

Abstract

Being interested in the application of welfare economics to insurance, I have been intrigued by the attention given in recent issues of this Journal to this subject. The primary purpose of this comment is to make some observations about part two of Herbert G. Grubel's fine piece, Risk, Uncertainty and Hazard.1 The heading Professor Grubel uses for part two is Moral Hazard and Social Insurance. The issue for discussion in my comment has to do with welfare economics and compulsory medical care insurance. The specific question I would like to treat is this: Does any situation necessarily exist in regard to which welfare economic theory would indicate that introduction of a compulsory medical care insurance plan would necessarily lead to an increase in total economic welfare? Since part two of Professor Grubel's article builds on work done by others, a brief review of this other work is necessary to remind ourselves of the context in which his article and my comment are offered.