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Anthony J. Culyer

This is of two main types. Ex ante moral hazard refers to the effect that being insured has on behaviour, generally increasing the probability that the event insured against will occur. Ex post moral hazard derives from the price- elasticity of demand : being insured reduces the patient’s price of care and hence leads to an increase in demand by insured persons. The basic economics of ex post moral hazard can be elucidated by considering the diagram. The vertical axis shows the price of health care P (assumed– implausibly in health care but

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Charles Goodhart

6. Moral hazard Charles Goodhart INTRODUCTION In their efforts to forestall and to limit the financial crisis, central banks and their governments have extended the safety net to a much wider range of bank, and banking-type, liabilities. With the downside risk of loss thereby limited, the potential for moral hazard is enhanced. We discuss in turn what this may mean for deposits, bank holdings of liquid assets, subordinated debt, equity and remuneration. I discuss the implications, and possible countermeasures, in each instance. Only in the case of equity

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Inés Macho-Stadler and David Pérez-Castrillo

✐ ✐ ✐ ✐ 16. Moral hazard: Base models and two extensions Inés Macho-Stadler and David Pérez-Castrillo∗ 1 INTRODUCTION Moral hazard (also called hidden action), the informational asymmetry related to the agent’s behavior during a relationship, has been a long-time concern for insurance. It is said that the term moral hazard was coined in the nineteenth century by fire insurers to differentiate among the various hazards that cause a fire: physical hazards, both the ones related to the causes (lightning, short circuits) and the ones affecting the magnitude of

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Anthony J. Culyer

Ex post moral hazard derives from the price- elasticity of demand : being insured reduces the patient’s price of care and hence leads to an increase in demand by insured persons compared to the demand they would express were they to pay the uninsured price of care. See Moral Hazard .

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Ouidad Yousfi and M. Kabir Hassan

18.  Moral hazard in Islamic profit–loss sharing contracts and private equity Ouidad Yousfi and M. Kabir Hassan INTRODUCTION Most people have heard of the term ‘private equity’ (PE), but only a few appreciate that it is a well-­developed asset class in the Middle East and is used to finance projects according to Islamic principles (Shari’ah-­ compliant investments). Whether Islamic or conventional, PE partnerships are a source of funding for a large range of unlisted and growing firms, supporting innovation, economic growth and employment by funding small and

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Anthony J. Culyer

Same as Ex Ante Moral Hazard .

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Anthony J. Culyer

Same as Ex Post Moral Hazard .

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Joanna Gray and Francesco de Cecco

2.  Competition, stability and moral hazard: the tension between financial regulation and State aid control Joanna Gray and Francesco de Cecco 1. INTRODUCTION The events of 2008 and their aftermath underscored how the priorities of financial regulation and those of State aid control can come into direct conflict, and the hard policy choices that must inevitably be made as a consequence. The aim of this chapter is to tease out this tension at a relatively general level – to set the scene conceptually before the more detailed chapters following explore its

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R. Quentin Grafton, Harry W. Nelson, N. Ross Lambie and Paul R. Wyrwoll

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George Norman and Darlene C. Chisholm