In health insurance, a traditional deductible (i.e. with a deductible range [0,d]) is in theory not effective in reducing moral hazard for individuals who know (ex-ante) that their expenditures will exceed the deductible amount d, e.g. those with a chronic disease. To increase the effectiveness, this paper proposes to shift the deductible range to [s(i),s(i)+d], with starting point s(i) dependi...

This paper describes two new methods for testing and measuring moral hazard that are applicable to a variety of insurance settings where panel data is available. The methods are able to measure moral hazard separately from adverse selection. The first method uses the variation in risk over different objects with different levels of insurance owned by the same person to isolate the average effec...

In a model of dual agency problems where borrower-lender and bank-nonbank incentives may conflict, we predict a hockey stick relation between bank skin in the game and covenant tightness. As bank participation declines covenant tightness increases until reaching a low threshold, at which point the relation sharply reverses and covenant protection is removed with a commensurate increase in sprea...

Medical malpractice liability reform is often promoted as a means to increase the labor supply of health care providers and improve access to medical care. Theory suggests, however, that if physicians differ in their malpractice risk, then reforms will tend to attract those physicians with the highest risk. In principle, any association between reforms and overall malpractice risk could be attr...

C alls for deposit insurance reform regularly sound the refrain to make deposit insurance premiums more risk based.1 Those who support such a change believe that risk-based premiums will discourage insured banks from taking excessive risk because a bank facing higher premiums will think twice before undertaking a risky activity. This logic seems impeccable: Let banks face the true cost of risk ...