Estimating the Tradeoff between Risk Protection and Moral Hazard with a Nonlinear Budget Set Model of Health Insurance.” NBER Working Paper 18108

Insurance induces a tradeoff between the gains from risk protection and the losses from moral hazard. Deductibles, coinsurance rates, and stoplosses alter this tradeoff by inducing nonlinearities in the consumer budget set. Empirical work traditionally considers each side of the tradeoff separately, but I model both simultaneously, allowing for a general nonlinear budget set. I illustrate the properties of my model using health insurance data from a large firm. In this context, average deadweight losses from moral hazard outweigh average gains from risk protection. However, both are very small relative to transfers from the government an