Thomas Sowell - Moral Hazzard

Thomas Sowell

One of the things that makes it tough to figure out how much has to be charged for insurance is that people behave differently when they are insured from the way they behave when they are not insured. In other words, if one person out of 10,000 has his car set on fire, and it costs an average of $10,000 to restore the car to its previous condition, then it might seem as if charging one dollar to all 10,000 people would be enough to cover the cost of paying $10,000 to the one person whose car that will need to be repaired. But the joker in this deal is that people whose cars are insured may not be as cautious as other people are about what kinds of neighborhoods they park their car in. Read more here:

Thomas Sowell - Moral Hazzard