Moral Hazard Behavior Research Articles

Dynamic Incentive Mechanism for Large-scale Projects Based on the Reputation Effects

Large-scale projects play an important role in social and economic development. Recently, large-scale projects are becoming more complex with more uncertainties and risks during the construction, which leads to more complex and extensive management problems. In a large-scale project, there is a principal-agent relationship between the contractor and owner. The contractor may take moral hazard behavior to pursue his/her own interests due to the information asymmetry and conflict of interest, which could damage to the public and owner’s interests. Based on the principal-agent theory, a dynamic incentive model combining explicit and implicit incentives was constructed in large-scale projects, after analyzing the mechanism of reputation effects. A comparison was made between two scenarios. One scenario considered reputation effects; the other did not consider reputation effects. The results show that the contractor would be more inclined to make optimal efforts in the large-scale project after reputation effects are introduced, and this optimal effort level will improve with the increased influence degree of reputation effects. However, the contractor’s degree of risk aversion will weaken the incentive effects. In addition, compared to an explicit incentive, the reputation mechanism of an implicit incentive will increase the owner’s benefits. The findings not only provide important support for the owner to formulate relevant incentive clauses in the construction contract, but also has important practical significance for the construction of the micro-institutional environment in construction projects. This study did not take into account factors such as regulatory efficiency when establishing the reputation incentive model. How to combine reputational incentives with the degree of supervision will be the direction of future research.

Financial viability of a community-based health insurance scheme in two districts of northeast Ethiopia: a mixed methods study

BackgroundCommunity-based health insurance initiatives in low- and middle-income countries encountered a number of sustainability challenges due to their voluntary nature, small risk pools, and low revenue. In Ethiopia, the schemes’ financial viability has not been well investigated so far. This study examined the scheme’s financial viability and explored underlying challenges from the perspectives of various key stakeholders.MethodsThis study employed a mixed methods case study in two purposively selected districts of northeast Ethiopia. By reviewing financial reports of health insurance schemes, quantitative data were collected over a seven years period from 2014 to 2020 to examine trends in financial status. Trends for each financial indicator were analyzed descriptively for the period under review. Interviews were conducted face-to-face with nine community members and 19 key informants. We used the maximum variation technique to select the study participants. Interviews were audio recorded, transcribed verbatim, and translated into English. Thematic analysis was applied with both inductive and deductive coding methods.ResultsBoth schemes experienced excess claims costs and negative net income in almost all the study period. Even after government subsidies, the scheme’s net income remained negative for some reporting periods. The challenges contributing to the observed level of financial performance have been summarized under five main themes, which include adverse selection, moral hazard behaviors, stockout of medicines, delays in claims settlement for service providers, and low insurance premiums.ConclusionsThe health insurance scheme in both districts spent more than it received for claims settlement in almost all the period under the study, and experienced heavy losses in these periods, implying that it is not financially viable for the period in question. The scheme is also unable to fulfill its purpose of protecting members against out-of-pocket expenses at the point of health care. Interventions should target on the highlighted challenges to restore financial balance and enhance the scheme’s viability.

Reposition of Ta’zir and Ta’wid on Moral Hazard Behavior in Islamic Banking in Indonesia

Introduction to The Problem: The use of ta’zir and ta’wid in dealing with moral hazards in Islamic banking has been legalized through Bank Indonesia Regulation Number 7/46/PBI/2005 and DSN-MUI Fatwa Number 17/DSN-MUI/IX/2000. However, some scholars do not justify these policies because they are contrary to sharia rules. Purpose/Objective: This research aims to reposition ta’zir and ta’wid in dealing with moral hazard behavior. The repositioning in this context is to look for alternative ways to deal with customer moral hazard behavior. Design/Methodology/Approach: This is qualitative research involving secondary data arranged in an inductive-descriptive manner. It is also associated with a case study to obtain a complete picture of ta’zir and ta’wid in preventing moral hazards in Islamic banking. The data collected were analyzed through the stages of (1) data collection, (2) data reduction, (3) data display, and (4) conclusion/verification. Findings: Based on the results, the repositioning of ta’zir and ta’wid is necessary because, presently, its implementation contains elements of usury, which Islam forbids. Therefore, the proposed form enables customers to pay back debt in two or three installments without increasing its value in one payment. This policy enables customers whose late payment is not due to force majeure but an element of intent or bad faith. Paper Type: Research Article

The Association Between Conditional Cash Transfer and Fertility Intention in Indonesia

This study aims to analyze the relationship between conditional cash transfer (PKH in Indonesia)acceptance status and fertility intentions of married women ages 15-49 years who do not use contraception in Indonesia. The data used in this research comes from the results of SUSENAS 2017. The sample was limited to married women aged 15-49 years not currently using a contraceptive method. Ordinal logistic regression was employed to analyze the relationship between PKH acceptance status and fertility intention after controlling for the effects of individual control factors, while a multilevel ordinal logistic model was used to investigate the effects of contextual factors. The study results showed that after controlling for the effects of individual and contextual variables, a high fertility intention was associated with receiving PKH. Women from PKH beneficiary households tended to maximize the assistance received by increasing the number of children (moral hazard behavior ). Moral hazard behavior was more pronounced in women from households that had received PKH or received PKH but could not show their cards.

The Risk-Taking Behaviour of Tunisian Banks in the Post-Revolution Era: A Panel ARDL-PMG Approach

This study investigates the long-term determinants of capital buffers and risk-taking adjustment by focusing on a sample of listed Tunisian commercial banks. This research uses hand-collected semi-annual data. The panel autoregressive distributed lags technique is used to control for unit root processes and to check for long-term determinants of capital and risk-taking adjustment. The empirical findings prove the existence of a moral hazard and procyclical behaviour of Tunisian banks in response to capital requirements. However, some results indicate that capital standards are still an important prudential tool for ensuring the robustness of Tunisian banks. There have been no previous studies focusing on this issue in the context of the Tunisian banking system in the turbulent post-revolution era. This paper innovates by assuming that a set of bank-specific, macroeconomic and regulatory variables exert a long-term rather than a short-term influence on capital buffers and risk-taking. The research does not consider a possible long-term simultaneous relationship between capital and risk-taking. The sample could be extended if data were available. Tunisian banks are advised to diversify their sources of revenues and to thoroughly revise their business models in order to become less dependent on revenues from traditional intermediation activities and to reduce the procyclicality of the banking system.

A Study of Banks’ Systemic Importance and Moral Hazard Behaviour: A Panel Threshold Regression Approach

A Study of Banks’ Systemic Importance and Moral Hazard Behaviour: A Panel Threshold Regression Approach

Bank capital and risk adjustment responses to economic uncertainty: Evidence from emerging Southeast Asian economies

This paper examines how banks make capital and risk adjustments simultaneously amid economic uncertainty. Applying a simultaneous equations model with a partial adjustment for capital and risk of banks from emerging Southeast Asian economies, we show that banks pursue stability amid heightened economic uncertainty mainly by hoarding more capital buffers, while their risk adjustments are mostly unaffected or negative in few cases. Sub-sample analyses further show that less stable banks, characterized by low-capitalized and high-risk banks, raise capital buffers more rapidly to protect franchise value amid uncertainty. Moral hazard behavior among banks is not salient because neither less nor more stable banks engage in riskier undertakings amid uncertainty. Mechanism analyses show that the “wait and see”, “search for yield” and “herding” strategies of banks drive the positive nexus between economic uncertainty and banks’ capital adjustments, but generally do not condition the economic uncertainty-risk adjustment nexus.

The potential for moral hazard behavior in irrigation decisions under crop insurance

AbstractThe design of federal crop insurance has attracted the interest and attention of many economists and policymakers in the United States. Moral hazard is a frequently cited concern, as insurance may reduce the incentive for farmers to manage properly their agricultural operation. Moral hazard could play a role in irrigation decisions by incentivizing a farmer to choose a riskier irrigation management strategy, potentially affecting the long‐term sustainability of water resources. We use numerical simulation to determine if insurance coverage affects incentives on seasonal irrigation use. Results show that the potential for moral hazard at current costs and policy parameters is low, but that there is potential for moral hazard behavior when the cost of irrigation is high. Hence, conservation policies that increase the cost of irrigation cost (e.g., a water tax) may amplify the potential for moral hazard. In most cases, crop insurance provides a secondary effect that reduces irrigation use in addition to the direct water tax effect, although this reduction comes at increased taxpayer expense. However, it is possible that irrigation use increases under crop insurance. Therefore, there is a need for the explicit consideration of the unintended side effects of crop insurance on farmers’ irrigation water use decisions, particularly in regions experiencing water scarcity and rising marginal costs of irrigation.

Will foundry become a competitor of manufacturer in ODM supply chain?

PurposeThis paper aims to study whether the upstream foundry in the original design manufacturer (ODM) supply chain will violate the commission contract and engage in the production of pirated products. Based on the conclusion, this study hopes to explain the phenomenon of pirated products in reality and provide management enlightenment for related companies.Design/methodology/approachTo understand when will foundry violates the processing contract, this paper constructs a five-stage decision-making model, this study derives a model to get three situations and draw data images to describe the characteristics of decision-making by the foundry. Finally, this paper also considers some external supervision.FindingsThe results show that processing fee and other parameters (special cost, common cost, weakening factor and product difference) jointly determine the possibility of piracy by the foundry. Moreover, the external supervision mechanism has a significant effect on the piracy behavior of the foundry.Research limitations/implicationsThe research provides some support for real business activities, which actually involve many participants and mechanisms. Thus, it could be interesting to explore more multi-stage and complex business methods in reality.Practical implicationsThe analysis highlights less-concerned moral hazard behaviors in the ODM supply chain. By recreating the complex interactions of participants, the conclusion shed light on how should different roles deal with their risks and take actions in a real business environment.Originality/valueThe biggest contribution of this study is to discuss the issue of moral hazard in the ODM supply chain. Piracy initiated by foundries may be a new type of supply chain risk and should be paid attention to.

تسعير تأمين الودائع بالبنوک الإسلامية المصرية Deposit insurance pricing in Egyptian Islamic banks

المستخلص يهدف هذا البحث إلي تقدير سعر- تکلفة -التأمين على الودائع بالبنوک الإسلامية العاملة في مصر باستخدام البيانات بالقوائم المالية لـ 13 بنک فى 2018- 2019 باستخدام نموذج Merton ونموذج تسعير الخيارات. وتشيرالنتائج إلى وجود اختلاف کبير فى أقساط التأمين بين البنوک من أعلى معدل2.5% فى المصرف المتحد إلى أدنى معدل 0.0001 % فى بنک الشرکة المصرفية العربية الدولية. ويشيرتحليل الإنحدار إلى أن هناک دلالة إحصائية إيجابية (عند مستوى المعنوية 5%) بين أقساط التأمين وخطرالإئتمان. وهذه النتائج تبين ملاءمة تطبيق سياسة التأمين على أساس مخاطر البنک بدلا من سياسة السعر الثابت بالبنوک الإسلامية. ويستفاد من نتائج هذا البحث فى تخفيض الأخطار السلوکية، ويوصى البحث بتطبيق قسط التأمين المبنى على أساس المخاطر بدلا من القسط الثابت بالبنوک الإسلامية، وأيضا الاسترشاد بما توصل إليه هذا البحث. Abstract This research aims to estimate the price-cost-of deposit insurance in Islamic banks operating in Egypt using data in the financial statements of 13 banks in 2018-2019 using the Merton model and the options pricing model. The results indicate that there is a big difference in insurance premiums between banks, from the highest rate of 2.5% in The United Bank to the lowest rate of 0.0001% in the International Arab Banking Company. The regression analysis indicates that there is a statistical significance (the level of significance 5%) positive between insurance premiums and credit risk.. These results demonstrate the suitability of applying risk-based insurance premium policy in Islamic banks rather than flat rate policy in Islamic banks. The results of this research are used to reduce moral hazard behavior. The research recommends applying risk-based insurance premium instead of the flat rate,, in Islamic banks, as well as being guided by the findings of this research

Moral Hazard in Market Activities: A Textual and Contextual Perspective Review of Hadith

The purpose of this research is to analyze at the moral hazard of market activity in the Prophet's hadith. The market is a place where traders can engage in economic activity in order to make a profit. Some traders are forced to compromise their morality due to profit motivation. This is a qualitative descriptive research. This study employs the hermeneutic method, which entails examining the text and context in order to fully comprehend the prophet's hadith. The findings of this study show that Allah despises the market, which is an expression of the prophet's feelings about the types of market activity carried out by traders that are prohibited by Shari'a. Usury, gharar, and maisir are examples of traders' moral hazard behavior, which causes injustice and harm to third parties.

Branchless Banking Process in Rural Areas: A Price Barrier?

Branchless Banking is one of the programs of Indonesia's financial inclusion strategy. The programs' name is "Financial Service Without Office in the Framework of Inclusive Financial" which called “Laku Pandai.” This study aims to portrait the implementation of the Branchless Banking program concerning the obstacles that occurred to achieve program objectives. The research conducted using qualitative methods. The existence of Branchless Banking agents close to the community has fulfilled the program objective, to make an easy way for society to do financial transactions without having to go to the bank office. Therefore, the implementation of the Branchless Banking program met the criteria for eliminating non-price barriers in financial services in remote areas. However, delegation authority to the agent as an extension of the bank to provide limited financial services has encouraged agents to engage in moral hazard behaviors by charging the tariff that greater than the official rate set by the managing bank. It showed that the agent has taken the consumer surplus provided by the Branchless Banking technology. Although accepted by society since considerably cheaper than the fee to go to the nearest bank office, that condition becomes a price barrier for the future development of Branchless Banking.

Impacts of insurance expansion on health cost, health access, and health behaviors: evidence from the medicaid expansion in the US.

Expansion of subsidized health insurance may result in both safer and riskier health behavior and outcomes. While having insurance lowers cost barriers to receive both usual and preventive care, the lower potential cost from adverse health events may also promote risky behavior. In this paper, I exploit expansion in the Medicaid program under the Affordable Care Act to estimate the impact of insurance expansion on health outcomes and behaviors for low-income individuals in the US. I find that expansion of coverage has significantly lowered cost and increased access, particularly among minority populations, but has had no significant impact on preventive health behaviors. At the same time, I also find no evidence of moral hazard or increase risky behavior like smoking and drinking among residents of expansion states.

Quantitative Easing Policy and Moral Hazard Behaviour of U.S. Banks

Quantitative Easing Policy and Moral Hazard Behaviour of U.S. Banks

Grounded theory research on the factors that lead to doctor moral hazard

Abstract Moral hazard clearly exists among doctors, and it has a dramatic impact on doctor-patient relationships, medical costs and medical risks. This study explored the factors that lead to doctor moral hazard, as well as the interrelationships and internal regularity of these factors. This study takes doctor moral hazard as the research content and the inducing factors as the core theme, conducting grounded theory research on the causes of doctor moral hazard. Scientific understanding of doctor behavior would facilitate the prevention and control of doctor moral hazard behavior. This study used the principles and methodology of Glaser and Strauss’s grounded theory. Theoretical and snowball samplings were used to identify 24 subjects. Semi-structured in-depth interviews were conducted with each subject. Themes were identified through substantial (open) coding and theoretical coding. The factors that lead to doctor moral hazard were categorized into five dimensions, i.e. motivation, opportunity, self-rationalization, exposure and punishment. These five factors influence each other, forming the inducing mechanism of doctor moral hazard. This will provide useful theoretical support and method guidance for the follow-up prevention and control of moral hazard for doctors.

Counterparty Choice, Bank Interconnectedness, and Systemic Risk

We provide evidence on how banks form network connections and endogenous risk-taking in their non-bank counterparty choices in the OTC derivative markets. We use confidential regulatory data from the Capital Assessment and Stress Testing reports that provide counterparty-level data across a wide range of OTC markets for the most systemically important U.S. banks. We show that banks are more likely to either establish or maintain a relationship, and increase their exposures within an existing relationship, with non-bank counterparties that are already heavily connected and exposed to other banks. Banks in such densely-connected networks are more likely to connect with riskier counterparties for their most material exposures. The effects are strongest in the case of (non-bank) financial counterparties. These findings suggest moral hazard behavior in counterparty choices. Finally, we demonstrate that these exposures are strongly linked to systemic risk. Overall, the results suggest a network formation process that amplifies risk propagation through non-bank linkages in opaque financial markets.

Investigation of Moral Hazard Deportments in Community-Based Health Insurance in Guto Gida District, Western Ethiopia: A Qualitative Study.

IntroductionEthiopia introduced CBHI in 2011 as part of the health sector finance improvement. This study was accompanied to identify moral hazard behaviors in community-based health insurance in Guto Gida District of Oromia regional state.MethodsThe qualitative study used data generated from focus group discussions and in-depth interviews. Three health service centers were purposively selected for the study. Thematic analysis was accomplished using the NVivo-12 software package as it operates better in qualitative data analysis.ResultsThe study found that member’s frequent visit to health service centers, tendency to collect more drugs, sense of feeling cheated by the insurance, tendency to use their cards redundantly, giving their cards to nonmembers, and seeking for most often expensive drugs were the demand side moral hazard behaviors explored by the study. From the supply side, inflating the price of drugs, increasing the price of services, alleging for services not provided, overstating the number of customers obtained insurance package and insulting users are found as moral hazard problems.ConclusionThe study concluded that moral hazard behavior is discouraging from both the demand and supply sides. The presence of moral hazard discourages members of CBHI and creates reluctances in the scheme officials and workers. The policy implication is that tremendous attention should be given to reducing the level of moral hazard behaviors from the sides of both users and providers.

US government TARP bailout and bank lottery behavior

Considerable debate surrounds how the US government's TARP bailout intervention has affected the risk-taking and moral hazard behavior of U.S. banks around the global financial crisis. We examine this issue with a focus on lottery behavior introducing MAX/MIN as a new measure of lotteryness in banking to capture the loss protection from bank bailout guarantees. We find that the TARP bailout increased the likelihood of bank lotteryness and risk shifting. Lottery-like bank equities are riskier after TARP and exhibit fatter right to left tails. A consistent pattern of risk taking and lottery behavior extends both before and after the 2008–2009 crisis, engulfing the largest systemic banks (SIFIs). While confirming that lottery-like bank equities have lower short-term return, we find they exhibit better cumulative long-term return performance. Our findings have important policy implications regarding government intervention in banking crises.

De la intención al comportamiento: modelo analítico del comportamiento de riesgo moral del médico basado en la teoría del comportamiento planificado

Based on the concept of doctor’s moral hazard behavior and the theoretical model of planned behavior, this paper constructs a theoretical model of doctor’s moral hazard behaviorm and analyzes the main influencing factors of doctor’s moral hazard behavior in detail, including behavioral attitudes, subjective norms and perceived behavioral control. Combined with the results of questionnaire survey, this paper uses structural equation model and factor analysis to verify the hypotheses. The results show that in the theoretical model of doctor’s moral hazard behavior, doctors’ moral risk intentions are affected by three independent variables: behavioral attitudes, subjective norms and perceived behavioral control. As an intermediary variable, moral risk intentions have a mediating effect on doctors’ moral hazard behavior. All path coefficients meet the requirements, and all assumptions of the model are verified. The theoretical model of doctor’s moral hazard behavior established in this study can effectively explain the occurrence law of doctor’s moral hazard behavior and can predict doctor’s moral hazard behavior according to the actual situation of various influencing factors. This provides an effective theoretical guidance for the next step to better carry out the relevant research on doctor’s moral hazard based on the management perspective, especially the establishment of prevention and control strategies for doctor’s moral hazard behavior.

Deterring dealer slackness: The role of supplier incentives and monitoring and the market environment

It is vital for suppliers to deter dealer slackness and to encourage dealers to work harder. However, dealer slackness has been largely overlooked in the literature. Based on agency theory, we theorize dealer slackness as a specific form of moral hazard. This research investigates the role of two supplier governance strategies, incentives, and monitoring, in inhibiting dealer slackness and the moderating effects of market uncertainty and competitive intensity. Using data from 211 dealers in China, the results indicate that supplier incentives are a useful tool to curb dealer slackness, while supplier monitoring encourages this misbehavior. The deterrent effect of supplier incentives is reinforced in a highly competitive and uncertain market. In addition, supplier monitoring reduces dealer slackness in an intensely competitive market. Overall, our research contributes to the literature by identifying a less explored form of moral hazard behavior and exploring ways to curb it.