Moral Hazard, Market Power, and Second Best Health Insurance

Berthold Wigger () and Markus Anlauf

No 2002-06, CSLE Discussion Paper Series from Saarland University, CSLE - Center for the Study of Law and Economics

Abstract: Individual moral hazard engendered by health insurance and monopolistic production are both typical phenomena of drug markets. We develop a simple model containing these two elements and evaluate the market equilibrium on the basis of consumer and social welfare. The consumer welfare criterion suggests that in the market equilibrium individuals purchase too much insurance against the risk of drug expenses. In contrast, the social welfare criterion suggests that individuals should purchase more insurance coverage than they choose to do in the market equilibrium.

Keywords: Drugs; Insurance; Monopoly; Welfare (search for similar items in EconPapers)
JEL-codes: D42 H51 I11 (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:csledp:200206

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