Search results

1 – 10 of over 6000
Article
Publication date: 20 June 2016

Roger Lee Mendoza

Moral hazard is a concept that is central to risk and insurance management. It refers to change in economic behavior when individuals are protected or insured against…

2164

Abstract

Purpose

Moral hazard is a concept that is central to risk and insurance management. It refers to change in economic behavior when individuals are protected or insured against certain risks and losses whose costs are borne by another party. It asserts that the presence of an insurance contract increases the probability of a claim and the size of a claim. Through the US Affordable Care Act (ACA) of 2010, this study seeks to examine the validity and relevance of moral hazard in health care reform and determine how welfare losses or inefficiencies could be mitigated.

Design/methodology/approach

This study is divided into three sections. The first contrasts conventional moral hazard from an emerging or alternative theory. The second analyzes moral hazard in terms of the evolution, organization, management, and marketing of health insurance in the USA. The third explains why and how salient reform measures under the ACA might induce health care consumption and production in ways that could either promote or restrict personal health and safety as well as social welfare maximization.

Findings

Insurance generally induces health care (over) consumption. However, not every additional consumption, with or without adverse selection, can be considered wasteful or risky, even if it might cost insurers more in the short run. Moral hazard can generate welfare and equity gains. These gains might vary depending on which ACA provisions, insured population, covered illnesses, treatments, and services, as well as health outcomes are taken into account, and because of the relative ambiguities surrounding definitions of “health.” Actuarial risk models can nonetheless benefit from incorporating welfare and equity gains into their basic assumptions and estimations.

Originality/value

This is the first study which examines the ACA in the context of the new or alternative theory of moral hazard. It suggests that containing inefficient moral hazard, and encouraging its desirable counterpart, are prime challenges in any health care reform initiative, especially as it adapts to the changing demographic and socio-economic characteristics of the insured population and regulatory landscape of health insurance in the USA.

Details

Journal of Health Organization and Management, vol. 30 no. 4
Type: Research Article
ISSN: 1477-7266

Keywords

Article
Publication date: 15 June 2018

De-Graft Owusu-Manu, A.S. Kukah, David John Edwards, Erika Anneli Pärn, Hatem El-Gohary and Clinton Aigbavboa

The purpose of this paper was to assess the causal relationship(s) between moral hazard and adverse selection of public–private partnership (PPP) construction projects…

Abstract

Purpose

The purpose of this paper was to assess the causal relationship(s) between moral hazard and adverse selection of public–private partnership (PPP) construction projects. Structural equation modelling (SEM) was used to explore the cause and effect relationship between moral hazard and adverse selection problems in PPP construction projects in Ghana. The study produced a framework to predict, estimate and depict the complex causal relationships (i.e. the directionality) between moral hazard and adverse selection.

Design/methodology/approach

To test the proposed framework, a quantitative methodology was used, in which, data were collected using research questionnaires that targeted a sample of 280 PPP stakeholders in Ghana. In total, 210 useable questionnaires were retrieved, representing a response rate of 75 per cent.

Findings

The interrelationships between the eight causes and the nine effects of moral hazard and adverse selection were established using the model. The tested framework showed the degree of association and isolation of the unobserved variables on the indicator factors. Confirmatory factor analysis (CFA) was used to evaluate the fit of items to latent constructs. Because the fit of each model was good and the item loadings were adequate, it was assumed that the indicators of the different variables factors were fitting. Furthermore, a diagnostic fit analysis was conducted using the robust maximum likelihood method to test the statistical significance of the parameter estimates.

Practical implications

This novel research is one of the few studies investigating the causal relationships between moral hazard and adverse selection of PPP construction projects. The research concluded with future studies that seek to validate the model developed in other countries and/or other industries.

Originality/value

The research findings will serve as a guide for construction stakeholders in the PPP sector on the causes and effects of adverse selection and moral hazard and how to mitigate these.

Details

Journal of Engineering, Design and Technology, vol. 16 no. 3
Type: Research Article
ISSN: 1726-0531

Keywords

Article
Publication date: 21 August 2007

Zhang Cui‐hua and Yu Hai‐bin

Moral hazard and adverse selection often exist in asymmetric information environment. In this paper, quality investment decision problem is studied under moral hazard. A…

Abstract

Moral hazard and adverse selection often exist in asymmetric information environment. In this paper, quality investment decision problem is studied under moral hazard. A basic model for quality investment level decision is developed with the supplier as a principal and the buyer as an agent. And then we regard the supplier and the buyer’s rational limitations to set up a model when the buyer’s quality evaluation and processing activities are hidden. The model is optimized and the results under different backgrounds are discussed and compared. Results show that the buyer’s quality evaluation level and processing level are mostly influenced by the supplier’s quality assurance payment. Both the supplier and the buyer choose different quality investment levels under moral hazard because of the supplier’s payment to the buyer in case of internal failure and external failure.

Details

Asian Journal on Quality, vol. 8 no. 2
Type: Research Article
ISSN: 1598-2688

Keywords

Open Access
Article
Publication date: 6 November 2017

Noel Murray, Ajay K. Manrai and Lalita Ajay Manrai

This paper aims to present an analysis of the role of financial incentives, moral hazard and conflicts of interests leading up to the 2008 financial crisis.

4158

Abstract

Purpose

This paper aims to present an analysis of the role of financial incentives, moral hazard and conflicts of interests leading up to the 2008 financial crisis.

Design/methodology/approach

The study’s analysis has identified common structural flaws throughout the securitization food chain. These structural flaws include inappropriate incentives, the absence of punishment, moral hazard and conflicts of interest. This research sees the full impact of these structural flaws when considering their co-occurrence throughout the financial system. The authors address systemic defects in the securitization food chain and examine the inter-relationships among homeowners, mortgage originators, investment banks and investors. The authors also address the role of exogenous factors, including the SEC, AIG, the credit rating agencies, Congress, business academia and the business media.

Findings

The study argues that the lack of criminal prosecutions of key financial executives has been a key factor in creating moral hazard. Eight years after the Great Recession ended in the USA, the financial services industry continues to suffer from a crisis of trust with society.

Practical implications

An overwhelming majority of Americans, 89 per cent, believe that the federal government does a poor job of regulating the financial services industry (Puzzanghera, 2014). A study argues that the current corporate lobbying framework undermines societal expectations of political equality and consent (Alzola, 2013). The authors believe the Singapore model may be a useful starting point to restructure regulatory agencies so that they are more responsive to societal concerns and less responsive to special interests. Finally, the widespread perception is that the financial services sector, in particular, is ethically challenged (Ferguson, 2012); perhaps there would be some benefit from the implementation of ethical climate monitoring in firms that have been subject to deferred prosecution agreements for serious ethical violations (Arnaud, 2010).

Originality/value

The authors believe the paper makes a truly original contribution. They provide new insights via their analysis of the role of financial incentives, moral hazard and conflicts of interests leading up to the 2008 financial crisis.

Details

Journal of Economics, Finance and Administrative Science, vol. 22 no. 43
Type: Research Article
ISSN: 2077-1886

Keywords

Article
Publication date: 22 February 2013

Mahito Okura

The purpose of this paper is to investigate the insurance market in which moral hazard and insurance fraud coexist. In this situation, this research examines the…

3298

Abstract

Purpose

The purpose of this paper is to investigate the insurance market in which moral hazard and insurance fraud coexist. In this situation, this research examines the relationship between moral hazard and insurance fraud. Also, this research shows how the amount of policyholder's effort to lower accident probability changes when insurance firm increases their investment in preventing insurance fraud.

Design/methodology/approach

Using a theoretical model containing five‐stages, the author sheds light on how the possibility of insurance fraud affects the amount of policyholder's effort.

Findings

The main results of this research are as follows. First, the amount of policyholder's effort is a weakly monotone decreasing function of the insurance firm's investment in preventing insurance fraud. Second, unlike in previous moral hazard models, the policyholder chooses a strictly positive amount of effort even in the full insurance case because the possibility of insurance fraud gives an incentive to realize policyholder's effort. Third, the amount of insurance firm's investment in preventing insurance fraud depends on whether it wants to give an additional incentive to policyholder's effort in exchange for realizing the possibility of insurance fraud.

Originality/value

This is the first paper to investigate the relationship between moral hazard and insurance fraud by using the microeconomic theory.

Details

The Journal of Risk Finance, vol. 14 no. 2
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 19 August 2009

W. Scott Sherman and Valrie Chambers

Corporate scandals at Enron, Tyco, and MCI highlight the issue of opportunistic management behavior. The US Congress responded to these scandals by passing the…

Abstract

Corporate scandals at Enron, Tyco, and MCI highlight the issue of opportunistic management behavior. The US Congress responded to these scandals by passing the Sarbanes‐Oxley Act of 2002 (SOX). SOX imposes additional management responsibilities and corporate operating costs on companies trading under SEC regulations. This paper examines three options for US corporations responding to SOX: compliance with SOX, taking a company private, or moving to a non‐ SEC‐regulated exchange, such as an international exchange. The paper then examines potential corporate governance options using Transaction Cost Economics (TCE; Williamson 1985) to develop propositions regarding which options firms may select.

Details

Multinational Business Review, vol. 17 no. 3
Type: Research Article
ISSN: 1525-383X

Keywords

Article
Publication date: 18 June 2019

Mevliyar Er

The purpose of this paper is to investigate to what extent the increased insolvency filings by migrants since the enactment of the consumer insolvency law in 1999 is…

Abstract

Purpose

The purpose of this paper is to investigate to what extent the increased insolvency filings by migrants since the enactment of the consumer insolvency law in 1999 is associated with moral hazard. It describes the profile of migrant debtors and highlights the areas of moral hazard. This study aims to propose changes to the consumer bankruptcy system.

Design/methodology/approach

Empirical evidence for this work consists of primary data from 435 individuals mainly with immigration background, who were declared bankrupt by district courts (Amtsgericht). Both qualitative and quantitative research types were used. Interviews helped to attain an in-depth understanding of the way in which any misconduct may take place. Quantitative data were gathered to understand the debt profile of migrant debtors, types of liabilities and creditors’ reactions to write-off requests.

Findings

The paper provides empirical insights about the way misconduct is pursued and suggests that neither party, i.e. the debtors through debt counsellors and creditors/factoring companies or their representatives, is entirely free of unethical practice. Hence, the paper stresses the need to establish public agencies, which provide joint mediation services for private debtors and their creditors alike.

Research limitations/implications

Data collected for the purpose of this study may not be comprehensive because given the sensitivity of the area of study that is misconduct – including breaking the law – not all machinations may have been revealed and described in this work. Therefore, further research needs to be conducted in this field.

Practical implications

The paper has implications for policymakers. Consumer bankruptcy system is relatively new and needs to be amended to allow debtors and creditors to negotiate write-offs not by sending countless letters through their respective representatives, which is also carried out over a long period of time, but to try to come to terms in one agency, which is responsible for both sides.

Social implications

The findings in this paper may provide some valuable insights, which could also give impulses to debates on problems that may come with immigration.

Originality/value

To the best of the author’s knowledge, no research exists that analyzes the topic at hand with such extensive data and using both methods of research at the same time.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 22 February 2008

David T. Llewellyn

The purpose of this paper is to offer an initial assessment of the Northern Rock (NR) crisis.

5401

Abstract

Purpose

The purpose of this paper is to offer an initial assessment of the Northern Rock (NR) crisis.

Design/methodology/approach

The paper describes the context of financial market turmoil and the multi‐dimensional aspects of the crisis.

Findings

The central finding of this paper is that the NR episode is a multi‐dimensional problem and reflects a complex set of inter‐related problems.

Originality/value

The paper brings together some of the strands of the analysis and addresses several lessons that can be learned.

Details

Journal of Financial Regulation and Compliance, vol. 16 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 February 2004

Michael A. McCollough and Dwayne D. Gremler

Empirically evaluates a model of service guarantees by addressing the impact of a service guarantee on consumers’ satisfaction evaluations. Proposes a model suggesting…

2655

Abstract

Empirically evaluates a model of service guarantees by addressing the impact of a service guarantee on consumers’ satisfaction evaluations. Proposes a model suggesting that the differentiating and signaling properties of a guarantee can influence service provider satisfaction and that a service guarantee may capitalize on the coproduction nature of services to increase consumer self‐satisfaction and overall satisfaction. Finds empirical support that a guarantee can influence post‐consumption evaluations, even in the absence of service failure and the guarantee being invoked, and therefore suggests that a service guarantee may influence consumer satisfaction even if the service is already highly reliable.

Details

Managing Service Quality: An International Journal, vol. 14 no. 1
Type: Research Article
ISSN: 0960-4529

Keywords

Article
Publication date: 1 August 1999

Anne Marie Doherty and Barry Quinn

International retailers are increasingly using franchising as a means of entering foreign markets. However, international retail franchising lacks a conceptual basis from…

9458

Abstract

International retailers are increasingly using franchising as a means of entering foreign markets. However, international retail franchising lacks a conceptual basis from which an explanation of the major elements of this activity can be generated. Agency theory and its major premises of information asymmetry, monitoring costs, moral hazard and opportunism, are introduced in an attempt to provide an initial effort at bridging this conceptual gap. The paper reviews international retailing and franchise research before explaining agency theory. A discussion follows on how agency theory can explain major elements of international franchise activity of retail firms such as the international retail franchise process and the operationalisation of the international retail franchise system.

Details

International Journal of Retail & Distribution Management, vol. 27 no. 6
Type: Research Article
ISSN: 0959-0552

Keywords

1 – 10 of over 6000