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Center for Policy Research

Policy Brief

The Truth about Moral Hazard and Adverse Selection

Mark V. Pauly

C.P.R. Policy Brief No. 36

February 2007

Abstract

This brief is actually going to have two levels. One level will go with the advertised title, and the author will tell you his current views on the truth about moral hazard and adverse selection. Adverse selection will serve as somewhat of a handmaid of moral hazard, as you will see. That’s one level. The other level, though, which continues to surprise the author, is that these two topics—they’re two buzzwords from insurance theory—have generated an enormous amount of policy interest and, yes, passion. Some people passionately believe some things about moral hazard that others passionately disbelieve. And so as part of this second level the author will draw back a bit from the actual subject matter to ask a kind of positive public policy question: Why is it that some people can get so passionate about a subject that seems fairly esoteric?

Sponsored by the The Herbert Lourie Memorial Lecture series, which is jointly sponsored by Syracuse University's Maxwell School of Citizenship and Public Affairs and the Central New York Community Foundation, Inc., and is administered by the Center for Policy Research and The Lerner Center for Public Health Promotion.

The Center for Policy Research Policy Brief series is a collection of essays on current public policy issues in aging; urban and regional studies; education finance and accountability; public finance; social welfare, poverty, and income security; and related research done by or on behalf of the Center for Policy Research at the Maxwell School of Syracuse University.


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