That’s a more complicated case, especially assuming that the insurance is opt-in. In an ideal world that would mean that the inefficiency also acts as a tax on irrationality.
Your example of serviceman pay isn’t actually that far-fetched. For instance, Finland pays conscripts barely anything, between 6 and 14 euros per day depeding on rank [1]. Since the alternative is prison time [2], there’s indeed not much reason to pay. This has surprisingly low impact on morale.
In an ideal world that would mean that the inefficiency also acts as a tax on irrationality.
Why is the insurance inefficient? The whole point of insurance is to spread risk; some people get out more than they pay in (or could possibly pay in), because nobody knows in advance who’s going to need the expensive procedure. If insurance couldn’t do this, it wouldn’t be “efficient”; it would be useless.
Oops, seems like I was wrong here. The dynamic doesn’t extend to insurance, at least in general. Good point.
Then, my objection would be that the equvalence itself doesn’t hold. Insurance is, supposedly, priced based on the actual risk. It also doesn’t contain a negative feedback loop; people don’t get sick more often because they pay for the insurance [1]. This is not the case for a “no man left behind” policy. The rescue operations cost, on expectation, more lives than they save. Since no money is involved, the policy cannot price in the risk. Of course this policy isn’t absolute and in some cases isn’t followed, when the ratio looks too bad. Not that a medical insurance company would burn hundred millions for a single patient either.
That’s a more complicated case, especially assuming that the insurance is opt-in. In an ideal world that would mean that the inefficiency also acts as a tax on irrationality.
Your example of serviceman pay isn’t actually that far-fetched. For instance, Finland pays conscripts barely anything, between 6 and 14 euros per day depeding on rank [1] . Since the alternative is prison time [2] , there’s indeed not much reason to pay. This has surprisingly low impact on morale.
Slightly more complicated: https://intti.fi/paivaraha-ja-varusraha
In practice, something like house arrest with an ankle monitor
Why is the insurance inefficient? The whole point of insurance is to spread risk; some people get out more than they pay in (or could possibly pay in), because nobody knows in advance who’s going to need the expensive procedure. If insurance couldn’t do this, it wouldn’t be “efficient”; it would be useless.
Oops, seems like I was wrong here. The dynamic doesn’t extend to insurance, at least in general. Good point.
Then, my objection would be that the equvalence itself doesn’t hold. Insurance is, supposedly, priced based on the actual risk. It also doesn’t contain a negative feedback loop; people don’t get sick more often because they pay for the insurance [1] . This is not the case for a “no man left behind” policy. The rescue operations cost, on expectation, more lives than they save. Since no money is involved, the policy cannot price in the risk. Of course this policy isn’t absolute and in some cases isn’t followed, when the ratio looks too bad. Not that a medical insurance company would burn hundred millions for a single patient either.
Not counting counterfactually using the money for preventative measures.