The Moral Hazard, Foreign Trade Edition

Via US Food Policy blog.

Why and how do insurers write this kind of policy? It's like picking up nickels in front of a steamroller AFTER AGREEING TO HAVE YOURSELF CHAINED DOWN TO THE ROAD!

These shipments were already known to be in violation of trade rules. Why underwrite this risk?

PRESS RELEASE:
Kelley Drye & Warren LLP Files $1 Billion Lawsuit on Behalf of Domestic Producers Against Insurers and U.S. Government for Damages Caused by Dumped Chinese Food Products

04/07/09


Today, domestic producers of fresh garlic, crawfish tail meat, canned mushrooms and honey, represented by the law firm of Kelley Drye & Warren LLP, filed a class action lawsuit against major insurance companies to recover close to $1 billion in damages. The Washington, D.C. law firm of Adduci, Mastriani & Schaumberg, LLP is co-counsel with Kelly Drye for many domestic producers of crawfish tail meat. The complaint states that the insurers\' negligent issuance of customs surety bonds, and subsequent refusal to pay under those bonds, allowed the sale of huge amounts of competing food imports from China at below-cost, or \"dumped\" prices. This caused severe financial damages to the domestic producers. The lawsuit, filed in the federal Court of International Trade, also claims that the U.S. Customs and Border Protection and the Commerce Department failed to enforce the four antidumping orders issued years ago to protect the domestic producers from dumped Chinese imports.

Incentives - Part 1

OK, so this is Part 1 of 2 on different factors to consider on incentives.

A lot of healthcare plans are trying out incentive plans to encourage patients to take action to make themselves more healthy. A laudable goal, plus a healthy insured party is a cheaper insured party, so everyone wins except for the providers of chronic and acute care.

Here's the first wrinkle:

http://econ161.berkeley.edu/Economists/prisoners_dilemma.html

Quick summary: If you run the iterated prisoners dilemma where one party gains more in absolute terms than the other in all payout terms, the party that gets the short end of the stick occasionally defects just to increase the sense of "fairness" even though it reduces his own absolute payout.

So, if you are giving someone an incentive, either:

1. Split the gains from cooperation evenly

or

2. Keep your gains to yourself

Giving someone an "I took my insulin" pin while you take home an extra $1,000 is probably not an option.