Moral hazard: a question of morality?

Economists use the term moral hazard to describe the tendency for insurance plans to encourage behavior that increases the risk of insured loss. Numerous economic studies have examined moral hazard effects in workers' compensation. Many of these have focused on the supposed propensity of workers to exercise less caution or to file more claims in response to increases in workers' compensation benefit levels. Although many authorities insist that moral hazard is a value-neutral concept, there are often pejorative connotations associated with contemporary discussions of moral hazard that intentionally or unintentionally disparage the motives of workers and undermine public support for workers' compensation programs. This article critically examines that literature and explores the conceptual underpinnings of economists' claims that employee moral hazard is rampant in workers' compensation. We examine the historical roots of moral hazard and its role in recent economic analyses of workers' compensation, consider the practical and ethical implications of that discourse, and offer suggestions for a truly value-neutral approach that would describe the system more fairly and accurately.