DO NOT COPY/PASTE FROM INTERNET! Any person with a good grasp of health economic
ID: 1111231 • Letter: D
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DO NOT COPY/PASTE FROM INTERNET!
Any person with a good grasp of health economics + Micro & Macro economics should be able to answer this question without problem
Any graphs provided in your answers should be clearly labelled.
your response to each question should be around 500 words (no less than 250 but no more than 1000 for each question)
your response to each question should be around 500 words (no less than 250 but no more than 1000 for each question) Any graphs provided in your answers shoul be clearly labelled.Explanation / Answer
2. Moral hazard:
Moral hazard can be defined as the behavioural change that happens when a person is insured against a loss. It This can occur when a party provides misleading information has the tendency to take unusual risks. There are two different types of moral hazard namely, ex-ante and ex-post moral hazards.
Ex-ante refers to prior to. In case of moral hazard, it denotes the behaviour before any event happening. For instance, if a party is devoid of health insurance, he would do his daily routine in a very careful manner. Because, he or she may face a situation wherein have to pay heavy hospital bills in case of accidents. There could a change in behaviour once the party is insured. For example, the person may start involving in dangerous activities. As the person is insured, he or she may take more risks in life more than before he or she had no insurance.
Ex-post is the behaviour after the incident has occurred. Suppose a person who has taken a personal loan from a bank to venture into a business may inordinately spend money without concentrating on his or her business. This type of behaviour is termed as ex-post moral hazard. The person may lie that his business has failed despite making profits, may request a bailout or to be written off. This is tendency to conceal the truth and indulge in excessiveness. It also provides asymmetric information in connection with reporting losses.
Two potential ways addressing moral hazards:
Because the problem is asymmetric information. we can try to make information less asymmetric. If both parties have similar information, then one party cannot easily exploit the other. The second, we can try to reduce the incentive of the agent who exploits informational advantage.
User ratings can be got form familiar websites like Yelp or Angies list and for products from websites like Amazon.com. Information received from these websites help balance the information between the buyer and seller thereby mitigating issues of moral hazard. These reviews changes the incentives for the sellers, and they are less likely to exploit the buyers in general. It is a demand side measure to reduce informational asymmetry.
Another approach to tackle moral hazard is by modifying incentives. Examples include house inspections and second opinion from doctors. By law, health inspectors cannot sell services to fix any problems they have identified. This changes their incentives, and no longer they have incentives to overstate potential problem issues to inflate the bill. Similarly in the case of second opinion from doctors, they would have little incentives to inflate the bill without proper diagnosis and treatment. The patients might get time to look into more information about the treatment and procedures. There is less of an incentive for doctors to exploit that informational asymmetry and this is a supply-side measure to address moral hazard.
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