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Moral Dimensions of Moral Hazards

Published online by Cambridge University Press:  21 October 2013

WILL BRAYNEN
WILL BRAYNEN*
Affiliation:
Stanford University, [email protected]
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Abstract

‘Moral hazard’ is an economic term which commonly refers to situations in which people have a tendency to increase their exposure to risk when the costs of their actions, should they get unlucky, befall someone else. Once insured, for example, a person might have little reason, financially speaking, to be careful if he will get fully reimbursed for his losses should things go wrong, especially if he does not risk an increase in his insurance premium fees. In this article, I argue that moral hazards are not morally neutral. To this end, I distinguish between concepts that (a) call for a moral value judgement but do not have a fixed moral value and (b) those that call for a moral value judgement and also have a fixed moral value. In short, this article examines questions that lie at the intersection of ethics and economics.

Type
Research Article
Information
Utilitas , Volume 26 , Issue 1 , March 2014 , pp. 34 - 50
Copyright
Copyright © Cambridge University Press 2013 

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References

1 Pauly, Mark V., ‘The Economics of Moral Hazard: Comment’, The American Economic Review 58 (1968), pp. 531–37Google Scholar, at 531. Also, Arrow, Kenneth, ‘Uncertainty and the Welfare Economics of Medical Care’, American Economic Review 53 (1963), pp. 941–73Google Scholar.

2 Dworkin, Ronald, ‘What Is Equality? Part II: Equality of Resources’, Philosophy and Public Affairs 10 (1981), pp. 283–345Google Scholar, at 325.

3 Hale, Benjamin, ‘What's So Moral about the Moral Hazard?’, Public Affairs Quarterly 23 (2009), pp. 1–25Google Scholar.

4 Hale, ‘What's So Moral about the Moral Hazard?’, p. 3.

5 Hale, ‘What's So Moral about the Moral Hazard?’, p. 5.

6 Baker, Tom, ‘On the Genealogy of Moral Hazard’, Texas Law Review 75 (1996), pp. 237–92Google Scholar, at 238–9.

7 Hale, ‘What's So Moral about the Moral Hazard?’, p. 1.

8 RAND, ‘The Health Insurance Experiment’, The Rand Corporation, <http://www.rand.org/content/dam/rand/pubs/research_briefs/2006/RAND_RB9174.pdf> (2006), p. 4.

9 For the purposes of this article, I am intentionally keeping away from employing the famous distinction between thick and thin concepts. For more on the thin/thick distinction, see Williams, Bernard, Ethics and the Limits of Philosophy (London, 1985)Google Scholar, as well as Scheffler, Samuel, ‘Morality through Thick and Thin: A Critical Notice of Ethics and the Limits of Philosophy’, The Philosophical Review 96 (1987), pp. 411–34CrossRefGoogle Scholar.

10 Perhaps the doctrine of individual responsibility has been overextended; that, however, is not the concern of the present article since in that case this doctrine will have been overextended elsewhere; the aim of this article is simply to shift the burden of proof to the other camp back from where Hale has placed it.

11 Dworkin, Ronald, Justice for Hedgehogs (Cambridge, Mass., 2011), p. 287Google Scholar.

12 By saying that ‘X is prima facie morally justified’, I mean that by default we are epistemically justified in believing that X is morally justified unless we hear otherwise, akin to a presumption of innocence. By saying that ‘X is pro tanto morally justified’, I mean that there is something unfortunate, morally speaking, in deviating from X even if, all things considered, deviating from X is the right (or the good) thing to do. See Kagan, Shelly, The Limits of Morality (Oxford, 1989), pp. 17Google Scholar and 47, as well as Ross, W. D., The Right and the Good, reprinted with an introduction by Philip Stratton-Lake (Oxford, 2002)CrossRefGoogle Scholar.

13 This same epistemic limitation can be found in markets that economists call ‘lemons markets’. For a seminal paper on ‘lemons markets’, see Akerlof, George, ‘The Market for “Lemons”: Quality Uncertainty and the Market Mechanism’, The Quarterly Journal of Economics 84 (1970), pp. 488–500CrossRefGoogle Scholar.

14 I refer, somewhat counter-intuitively, to those who are insured or are seeking insurance as ‘sellers’ and to insurance companies (or, similarly, the state should the state be providing insurance instead of private firms) as ‘buyers’ because this keeps the terminology parallel to what we might find in economic discussions of lemons markets.

15 I would like to thank all the members of the postdoctoral workshop at Stanford University's McCoy Family Center for Ethics in Society for their comments on earlier drafts of this article, as well as Drew Hutchins.