Immoral Hazards: New Orleans Style

"Moral hazard" is a term deployed by many economists and politicians to criticize and dismantle public programs. Missing from their vocabularies is the parallel term "immoral hazard." New Orleans' hurricane and aftermath reveal that immoral hazards have been ignored. The moral hazard concept developed in the insurance field. If an insurance company reimbursed home owners or auto drivers for all the costs of a fire or auto accident, they might be encouraged to be inattentive to fire threats or dangerous driving. Full coverage of home or auto losses would therefore produce a hazard, a moral hazard in that it induced antisocial behavior. Enter, therefore, "deductibles," so that the insured could not count on full reimbursement from the insurance company and would have an incentive to pay attention to fire and driving hazards.