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ISRN Economics
Volume 2013 (2013), Article ID 603973, 8 pages
http://dx.doi.org/10.1155/2013/603973
Review Article

John Nyman and the Economics of Health Care Moral Hazard

11500 Sawyer Avenue, Manasquan, NJ 08736, USA
2CBHSQ, SAMHSA, US Department of Health and Human Services, 1 Choke Cherry Road, Rockville, MD 20050, USA

Received 30 September 2012; Accepted 5 December 2012

Academic Editors: M. J. Larson, I. Shoji, and J. Zarnikau

Copyright © 2013 Sander Kelman and Albert Woodward. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

In 2003, John Nyman published The Theory of Demand for Health Insurance. His principal contributions are (1) to replace the previously unexamined axiom of risk avoidance with the axiom of welfare maximization; (2) to uncover a misinterpretation in the literature on moral hazard, namely, the insurance payoff as a price reduction, rather than as an income transfer. The immediate consequence of these reformulations is to recognize insurance-induced health care utilization as resulting in an increase in social welfare. Despite its evident validity and enormous implications, Nyman’s work has received very little attention or recognition in the health economics literature.