Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second-Best in Health Care Markets

Posted: 7 Sep 2000

See all articles by Martin Gaynor

Martin Gaynor

Carnegie Mellon University; National Bureau of Economic Research (NBER); Leverhulme Centre for Market and Public Organisation

Deborah Haas-Wilson

Smith College

William B. Vogt

RAND Corporation; National Bureau of Economic Research (NBER)

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Abstract

The nature, and normative properties, of competition in health care markets has long been the subject of much debate. In this paper we consider what the optimal benchmark is in the presence of moral hazard effects on consumption due to health insurance. Intuitively, it seems that imperfect competition in the health care market may constrain this moral hazard by increasing prices. We show that this intuition cannot be correct if insurance markets are competitive. A competitive insurance market will always produce a contract that leaves consumers at least as well off under lower prices as under higher prices.

JEL Classification: D8, L1, I11, L4, D6, D4

Suggested Citation

Gaynor, Martin and Haas-Wilson, Deborah and Vogt, William B., Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second-Best in Health Care Markets. Available at SSRN: https://ssrn.com/abstract=238408

Martin Gaynor (Contact Author)

Carnegie Mellon University ( email )

H. John Heinz III School of Public Policy
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United States
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Leverhulme Centre for Market and Public Organisation

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Deborah Haas-Wilson

Smith College ( email )

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William B. Vogt

RAND Corporation ( email )

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National Bureau of Economic Research (NBER)

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