The Behavioral Economics of Health Protection Action: An Empirical Evidence of Moral Hazard in the US Hog Farms

Abstract

Despite of theoretical predictions and abundant empirical evidence of moral hazard in medical insurance, evidence on moral hazard associated with work environment is very scarce. We test the existence of ex ante moral hazard for the US hog workers using the employee survey data in 1995 and 2000. With the agency contract, workers make second best efforts in protecting health in the unhealthy work environment. Hog farmers on family operations, without an agency contract, make first best preventative efforts. We find that, even though agricultural producers provide protective devices to reduce the negative effect of worse environment on employee’s health, employees may not wear them Employees on farms with an agency contract have 11% less moral hazard incidences than those employed on family farms, and so the former experience more respiratory symptoms. The producers respond to the moral hazard problems by designing an incentive contract. We also show that reducing pollutants, providing protective devices and instilling the importance of using masks helps preventing moral hazard incidences.