Economics EC248 – Chapter 10 – Study Material and Review
Notes
4 Different Types of Market Failures - correct answer ✔✔ 1) Moral hazard
2) Risk selection
3) Economies of scale in insurance provision
4) Missing (or incomplete) markets for insurance
Moral Hazard - correct answer ✔✔ the tendency of insurance coverage to change behavior and,
thereby, changing the expected value of the loss
Ex ante moral hazard - correct answer ✔✔ insurance-induced changes in behaviour that alter
the probability of an insured event occurring
The social welfare gain of Insurance - correct answer ✔✔ The risk reduction for individuals
through insurance and the ability for insurance to provide greater access to care make society
better off.
Insurance has two welfare effects - correct answer ✔✔ 1) Social Welfare Gain
2)Social welfare loss of increased utilization of healthcare
Motivation for reducing supply side moral hazards - correct answer ✔✔ 1)Providers possess the
knowledge and information required to judge when a service is necessary and to selectively
reduce the use of low-benefit care
2)Providers themselves can be a source of moral hazard (i.e., supplier-induced demand (SID))
Ways to manage supply side moral hazard - correct answer ✔✔ 1)Gatekeeper Model of Access
2)Managed Care Model
Notes
4 Different Types of Market Failures - correct answer ✔✔ 1) Moral hazard
2) Risk selection
3) Economies of scale in insurance provision
4) Missing (or incomplete) markets for insurance
Moral Hazard - correct answer ✔✔ the tendency of insurance coverage to change behavior and,
thereby, changing the expected value of the loss
Ex ante moral hazard - correct answer ✔✔ insurance-induced changes in behaviour that alter
the probability of an insured event occurring
The social welfare gain of Insurance - correct answer ✔✔ The risk reduction for individuals
through insurance and the ability for insurance to provide greater access to care make society
better off.
Insurance has two welfare effects - correct answer ✔✔ 1) Social Welfare Gain
2)Social welfare loss of increased utilization of healthcare
Motivation for reducing supply side moral hazards - correct answer ✔✔ 1)Providers possess the
knowledge and information required to judge when a service is necessary and to selectively
reduce the use of low-benefit care
2)Providers themselves can be a source of moral hazard (i.e., supplier-induced demand (SID))
Ways to manage supply side moral hazard - correct answer ✔✔ 1)Gatekeeper Model of Access
2)Managed Care Model
