Center for Policy Research
Report
The Truth about Moral Hazard and Adverse Selection
Mark V. Pauly
February 2007
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Abstract
This report is actually going to have two levels. One level will go with the advertised title, and the author will tell you his current views on the truth about moral hazard and adverse selection. Adverse selection will serve as somewhat of a handmaid of moral hazard, as you will see. That’s one level. The other level, though, which continues to surprise the author, is that these two topics—they’re two buzzwords from insurance theory—have generated an enormous amount of policy interest and, yes, passion. Some people passionately believe some things about moral hazard that others passionately disbelieve. And so as part of this second level the author will draw back a bit from the actual subject matter to ask a kind of positive public policy question: Why is it that some people can get so passionate about a subject that seems fairly esoteric?
This report is sponsered by The Herbert Lourie Memorial Lecture series, which is jointly sponsored by the Maxwell School of Citizenship and Public Affairs and the Central New York Community Foundation, Inc. and is administered by the Center for Policy Research and The Lerner Center for Public Health Promotion and Population Health.
The Center for Policy Research at the Maxwell School of Syracuse University supports policy-relevant research and disseminates knowledge that enables leaders to make informed policy decisions and provide effective solutions to critical challenges in our local region, state, country and across the world.