The Homa Files

According to conservative economist Thomas Sowell …

“Moral hazard” is an insurance term.

People behave differently when they are insured from the way they behave when they are not insured.

For example, people whose cars are insured may not be as cautious as other people are about what kinds of neighborhoods they park their car in.

Similarly, when taxpayer-subsidized government insurance policies protect people against flood damage, more people are willing to live in places where there are greater dangers of flooding.

Often these are luxury beach front homes with great views of the ocean.

So what if they suffer flood damage once every decade or so, if Uncle Sam is picking up the tab for restoring everything?

More than 25,000 properties have received government flood insurance payments more than four times.

Over a period of 28 years, more than 4,000 properties received government insurance payments exceeding the total value of the property.

If a property is located in a dangerous place, repeated damage can easily add up to more than the property is worth, especially if the property is damaged and then later wiped out completely.

Excerpted from RCP: “Moral Hazard” in Politics, August 27, 2010
http://www.realclearpolitics.com/articles/2010/08/27/moral_hazard_in_politics_106909.html

This entry was posted on January 19, 2011 at 6:37 am and is filed under Economics, Thomas Sowell. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.