Fee-For-Service Health Insurance and Moral Hazard of Hospitals

The supply-side contribution to the surge of medical expense is overlooked in the Korean health insurance market. Commonly, the demand-side is accounted for the excessive increase in medical consumption. Previous studies suggest the moral hazard or adverse selection of Fee-For-Service Health Insurance (FFS) policyholders as the source of the problem. However, this paper focuses on the moral hazard of medical institutions using Korea Health Panel (KHP) Data version 1.5 from year 2008–2016. This study finds the medical usage difference between FFS holders and non-holders were greater for clinics and local hospital visits than the visits to general hospitals or special hospitals. This implies that supply-side contributes to the ex-post moral hazard of health insurance.

Incentive Design for Operations-Marketing Multitasking

A firm hires an agent (e.g., a store manager) to undertake both operational and marketing tasks. Marketing tasks boost demand, but for demand to translate into sales, operational effort is required to maintain adequate inventory. The firm designs a compensation plan to induce the agent to put effort into both marketing and operations while facing demand censoring (i.e., demand in excess of available inventory is unobservable). We formulate this incentive-design problem in a principal-agent framework with a multitasking agent subject to a censored signal. We develop a bang-bang optimal control approach, with a general optimality structure applicable to a broad class of incentive-design problems. Using this approach, we characterize the optimal compensation plan, with a bonus region resembling a “mast” and “sail” such that a bonus is paid when either all inventory above a threshold is sold or the sales quantity meets an inventory-dependent target. The optimal mast-and-sail compensation plan implies nonmonotonicity, where the agent can be less likely to receive a bonus for achieving a better outcome. This gives rise to an ex post moral hazard issue where the agent may “hide” inventory to earn a bonus. We show that this ex post moral hazard issue is a result of demand censoring. If available information includes a waiting list (or other noisy signals) to gauge unsatisfied demand, no ex post moral hazard issues remain. This paper was accepted by Vishal Gaur, operations management.

Evaluating Changes to Prevented Planting Provision on Moral Hazard

Prevented planting provision in crop insurance protects producers from failure to plant attributable to natural causes. We determined the impact of this provision at various crop insurance coverage levels on prevented planting claims and ex post moral hazard. The moral hazard incentive in the prevented planting provision is stronger for corn than soybeans. Reducing the prevented planting coverage factor for corn could likely reduce moral hazard, but the degree of the reduction will likely depend on the revenue protection coverage level. Conversely, we found moral hazard is unlikely to occur for soybean production regardless of the revenue protection coverage level.