A note on health insurance under ex post moral hazard

Pierre Picard (1)

1 X - École polytechnique

In the linear coinsurance problem, examined first by Mossin (1968), a higher risk aversion with respect to wealth in the sense of Arrow-Pratt implies a higher optimal coinsurance rate. We show that this property does not hold for health insurance under ex post moral hazard, i.e., when illness severity cannot be observed by insurers and policyholders decide on their health expenditures. The optimal coinsurance rate trades off a risk sharing effect and an incentive effect, both related to risk aversion.

Keywords: Health Insurance; ex post moral hazard; coinsurance

Domains: Economics and Finance

Pierre Picard. A note on health insurance under ex post moral hazard . 2016. ⟨hal-01385520⟩