Moral risk , also moral temptation , moral risk or rationality trap ( English moral hazard ) means false incentives - people or companies can behave irresponsibly or carelessly due to economic false incentives and thus trigger or increase a risk . The standard example is changes in behavior due to an insured risk. Originally a term from insurance science , moral risk is now part of general economic parlance.
The moral risk is often explained as a model as the result of asymmetrical information between the participants who do not have the same level of information. There is a moral risk when individuals are freed from being responsible for the potentially costly consequences of their actions because these costs are covered elsewhere. The individual risk is collectivized, i.e. from a risk for the acting individual to a risk for the collective concerned. In short: a moral risk in this case is the promotion of reckless or criminal behavior due to the certainty of coverage of the resulting damage risk.
Below are some examples of moral risks in everyday life in alphabetical order:
Share price decline
Greenspan Put : A general decline in stock prices can seriously affect investment and trigger an economic crisis. As a countermeasure, the central bank can buy up shares in the event of a crash in order to prevent the deterioration in value from spreading. As a result, stock prices are higher because stock traders rely on such intervention from the central bank in an emergency. These alleged guarantee by the central bank to a general decline in stock prices, after former US Federal Reserve chief Alan Greenspan and after the normal hedging against price decline, the put options , Greenspan Put mentioned.
There is a presumption that civil servants' willingness to perform is lower because, due to the fact that they cannot be terminated and the pension entitlements are secured, lower willingness to perform means no risk to civil servants. A possible counter-thesis would be that the "civil servant privileges" are used to reward special services (e.g. through allowances), such as special loyalty to the state or loyalty to the constitution, a ban on strikes and the like. Such considerations also apply to civil servant-like employment relationships, for example in large companies, or for non-terminability regulations after a long period of service in collective agreements .
With insurance coverage in Western health systems , the disparity between action and liability gives insured persons less incentive to restrict high-risk leisure activities or unhealthy lifestyles, since the statutory health insurance community pays the treatment costs if necessary . In health economics , this is known as the ex-ante moral hazard.
Possible countermeasures: Cost sharing in various forms, insurance premiums differentiated according to the risk of illness.
Medical services: patient
Since the costs do not play a role in the use of medical services, there is a risk that patients will request too many services, even those that are of very little or no use. The resulting costs are borne by the general public and make the overall system more expensive. In this case, the term ex-post moral hazard is used in health economics.
Medical services: doctor
The moral risk also occurs with the practitioner, e.g. B. the doctors: Because the costs of the treatment are not paid by the patient directly, but by his insurance, the practitioner is tempted to carry out unnecessary and / or too expensive treatments.
In the case of debts, there is a risk that debtors will become highly indebted assuming future debt relief ( debtor moral hazard ); Likewise, creditors who do not participate in debt relief could use the financial leeway created by debt relief to grant further credit ( creditor moral hazard ). Overall, debt relief offers debtors high incentives not to improve their economic performance.
The term shirking deals with the problem that employees reduce their performance because employers can only imperfectly control performance. This reduces the risk of sanctions for employees that should be associated with a reduction in performance. Performance bonuses or piecework can motivate workers to perform better.
A recipient of social benefits ( Hartz IV , unemployment or disability benefits ) is punished for accepting precarious work if the social benefits are first reduced through (modest) economic advancement and in the event of need again (e.g. unemployment , illness or accident ) the income from wage labor falls earlier than the social benefit support is reactivated. By waiting for various deadlines, the total income, including social benefits, can be lower in the case of temporary gainful employment than in the case of continuous receipt. The conflict can be defused by calculating social benefits on a long-term basis (with different assessments of the cases of new withdrawals or re-withdrawals) as well as a quick and uncomplicated procedure for reactivating social benefits.
Drivers drive more recklessly after taking out insurance because any damage would be covered by the insurance. In the worst case, damage is intentionally caused by car bums . This also applies to all property and life insurance . One possible solution is a high deductible or deductible, which reduces the risk for the insurance company, but also reduces the protection provided by the insurance for the policyholder ( conflicting objectives ).
In the event of economic crises in individual states or large companies of systemic importance , the international institutions and the large industrialized countries are forced to step in with rescue operations so that the individual state or large companies do not carry the entire economy with them through contagion - actors such as the central banks play the role of the Lender of last resort . This can lead to risky behavior by individual governments and large corporations who trust that they will need help if necessary. When companies pool losses, but can skim off profits themselves and are thus motivated to risky behavior, one can also speak of the risk incentive problem .
As a moral-philosophical theorem of liberalism and neoliberalism to explain the phenomena of economic crisis, moral risk is based on the ethical notion of the “badness of man”, which in extreme form leads to an “ ontologization of rule in the sense of an end of history”.
- Mankiw: Fundamentals of Economics. Volume 631 (continuing)
- Malcolm Gladwell: The Moral Hazard Myth.
- Arnold Picot: The limitless enterprise. Th. Gabler GmbH, Wiesbaden 2003.
- Arnold Picot: Organization - an economic perspective. 2005
- Hermann May, Hans-Jürgen Albers: Handbook for economic education. P. 438
- On the moral hazard involved in rescue operations by the central banks, cf. Gerhard Illing: The liquidity crisis looks darker in the United States than in Europe. FAZ , August 16, 2007, p. 19
- Hartmut Ihne / Jürgen Wilhelm, Introduction to Development Policy , 2013, p. 99
- Holger Schatz: work as rule. The crisis of the achievement principle and its neoliberal reconstruction. Münster 2004, page 252ff.