The ABC of economics (Основы экономики): Сборник текстов на английском языке. Гвоздева А.А - 22 стр.

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younger, lower-risk ones. Sometimes the government provides the insurance itself, as the federal government
does with Medicare and Social Security (an insurance policy that pays off heavily if one lives long), or it may
set the rates, as many states do with auto insurance. The traditional public-interest argument for government
rate regulation is to control a monopoly. But this argument ignores the fact that there are dozens of competing
insurers in most regulated insurance markets. Insurance rates are regulated to help some groups, usually those
imposing high risks, at the expense of others. The Massachusetts auto insurance market provides an example. In
1988, 63 per cent of drivers were in a subsidized pool. To fund this subsidy, unsubsidized drivers, whose claims
averaged $323, paid premiums that averaged $750.
Such practices raise a new class of equity issues. Should the government force people who live quiet, low-
risk lives to subsidize the daredevil fringe? Most people's response to this question depends on whether they
think people can control risks. Because most of us think we should not encourage people to engage in behavior
that is costly to the system, we conclude, for example, that non-smokers should not have to pay for smokers.
The question becomes more complex when it comes to health care premiums for, say, gay men or recovering
alcoholics, whose health care costs are likely to be greater than average. Moral judgments inevitably creep into
such discussions. And sometimes the facts lead to disquieting considerations.
For example, smokers tend to die early, reducing expected costs for Social Security. Should they therefore
pay lower Social Security taxes?
The traditional role of insurance remains the essential one recognized in ancient civilizations, that of
spreading risk among similarly situated individuals. Insurance works most effectively when losses are not under
the control of individuals (thus avoiding moral hazard) and when the losses are readily determined (lest signifi-
cant transactions costs associated with lawsuits become a burden).
Individuals and firms insure against their most major risks high health costs, the inability to pay deposi-
tors – which often are politically salient issues as well. Unsurprisingly, government participation – as a setter of
rates, as a subsidizer, and as a direct provider of insurance services has become a major feature in insurance
markets. Political forces may sometimes triumph over sound insurance principles, but only temporarily. In a
sound market, we must recognize that with insurance, as with bread and steel, the cost of providing it must be
paid.
JOB SAFETY
By W. Kip Viscusi
Many people believe that employers do not care whether their workplace conditions are safe. If the gov-
ernment were not regulating job safety, they contend, workplaces would be unsafe.
In fact, employers have many incentives to make workplaces safe. Since the time of Adam Smith, econo-
mists have observed that workers demand "compensating differentials" (that is, wage premiums) for the risks
they face. The extra pay for job hazards in effect establishes the price that employers must pay for an unsafe
workplace. Wage premiums paid to U.S. workers for risking injury are huge in 1990 they amounted to about
$120 billion annually, which was over 2 per cent of the gross national product, and over 5 per cent of total
wages paid.
These wage premiums give firms an incentive to invest in job safety because an employer who makes his
workplace safer can reduce the wages he pays. Employers have a second incentive because they must pay
higher premiums for workers' compensation if accident rates are high. And the threat of lawsuits over products
used in the workplace gives sellers of these products another reason to reduce risks.
Of course, the threat of lawsuits gives employers an incentive to care about safety only if they anticipate
the lawsuits. In the case of asbestos litigation, for example, liability was deferred by several decades after the
initial exposure to asbestos. Even if firms were cognizant of the extent of the health risk, which many were not,
none of them could have anticipated the shift in legal doctrine that, in effect, imposed liability retroactively.
Thus, it is for acute accidents rather than diseases that the tort liability system bolsters the safety incentives
generated by the market for safety.
How well does the safety market work? For it to work well, workers must have some knowledge of the
risks they face. And they do. One study of how 496 workers perceived job hazards found that the greater the
risk of injury in an industry, the higher the proportion of workers in that industry who saw their job as danger-
ous. In industries with five or fewer disabling injuries per million hours worked, such as women's outerwear
manufacturing and the communication equipment industry, only 24 per cent of surveyed workers thought their
jobs to be dangerous. But in industries with forty or more disabling injuries per million hours, such as logging