Moral hazard is the economic principal describing the tendency of consumers to use more services when someone else is paying the bill. The recent Foundations and Trends® in Microeconomics edition featured a moral hazard article published by Richard J. Butler and HCMS Group CEO Harold H. Gardner, MD. The article discusses how moral hazard affects benefit consumption from two directions: 1) how insurance changes in one program (workers compensation) affects employee participation in other programs (disability benefits) at a point in time (inter-program moral hazard), and 2) how the consumption of program benefits now tends to affect employees behavior over time (benefits consumption capital).
A formal model is presented of inter-program moral hazard based on workers compensation with programs overlapping it (including sick leave/disability, health insurance, and unemployment insurance) and review of research evidence of the overlap response is shown. We also provide new evidence on benefits consumption capital concerning workers compensation based on data gathered from large private employers in the US.
Copies of the article can be obtained at http://dx.doi.org/10.1561/0700000037.