To wait or to pay for treatment?

Restraining ex-post moral hazard in health insurance

Abstract

This paper explores the hierarchy of two instruments, waits and copayments for medical treatment, for optimally solving the tradeoff between the economic gains from risk sharing and the losses from moral hazard. I show that the optimal waiting time is always zero, given that the copayment rate is optimally set. This result holds irrespective of whether health is an argument of the consumers' utility function or only a production factor for income.