THE MEASUREMENT OF MORAL HAZARD.

Insurance that lowers the cost of insured services to the insured may increase the usage of those services. This phenomenon is called ‘moral hazard’ in the insurance literature. This paper demonstrates how price elasticities of demand can be utilized to provide quantitative estimates of moral hazard. Empirical estimates of moral hazard, which are based on hospital patients in Iowa and their demand for hospital services, are presented. It is shown that the amount of moral hazard varied significantly with age class, type of illness, type of accommodation, and whether there were complications, but not with the sex of the patient. [ABSTRACT FROM AUTHOR]