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January 11, 2006

World's Best Example of 'Moral Hazard'


It appears on the front page of today's New York Times.

The paper's been running a multi–part series examining the plight of diabetics in New York City: Ian Urbina wrote today's story (part three), headlined "In The Treatment of Diabetes, Success Often Does Not Pay."

The graphic (above) accompanying the article illustrates the moral hazard: the worse the patient outcome, the more money the doctor takes home.

And the difference isn't trivial: a diabetes center loses an average of $455 each time a patient comes in for a checkup, but when complications occur and a diabetic's foot must be amputated a hospital stands to make between $1,499 and $11,360.

Moral hazard is a term often used in business and economics but its precise meaning had eluded me until now.

I've tried really hard to get a handle on it, even reading a novel (excellent, by the way) entitled "Moral Hazard" (below)


by Kate Jennings — who spent enough time embedded in the world of investment banking and Wall Street as a speechwriter to know whereof she scribes — but it too left me befuddled.

Alas, a state in which I spend most of my (what I believe to be — but one can never be too sure, can one? I'm thinking of the wonderful Spanish epigram, "Toda la vida es sueño, y los sueños sueños son*) waking hours.

But I digress.

In other words, a moral hazard is a situation in which someone benefits from someone else's misfortune and in which there is an financial incentive — enormous in the case of diabetics and their caregivers in New York — to make the bad situation worse.

*Life is a dream, and dreaming a dream as well.

Better in Spanish, isn't it?

January 11, 2006 at 02:01 PM | Permalink


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"...moral hazard is the name given to the increased risk of problematical (immoral) behavior, and thus a negative outcome ("hazard"), because the person who caused the problem doesn't suffer the full (or any) consequences, or may actually benefit. Such a concern typically arises in the context of a contract (for example, an insurance policy)."

Posted by: Dorothy | Jun 29, 2006 11:31:38 PM

I concur it's best in the original. A bit of the meaning is lost in English. In italian works quite well, "Tutta la vita e sogno ed i sogni, sogni sono." ed anche bello in italiano, non ci pensi?

Posted by: Katherine | Jan 12, 2006 10:06:44 PM

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