The recipients of the 2001 Mehr Award are Richard J. Butler and John D. Worrall for “Claims Reporting and Risk Bearing Moral Hazard in Workers’ Compensation,” The Journal of Risk and Insurance, Vol. 58, No. 2. (Jun., 1991), pp. 191-204.
Workers covered by workers’ compensation insurance generate two types of moral hazard: “risk bearing” moral hazard in which higher benefits induce workers to take more ex ante job risks given a higher level of ex post injury compensation and “claims reporting” moral hazard in which higher benefits have no effect on actual injuries (risk is unchanged) but does induce more claims filings. In this empirical study of indemnity and medical trends the quantitative impact of these two types of moral hazard are separated. In our specifications a positive claims reporting moral hazard more than offsets the negative risk bearing moral hazard. The presence of claims reporting moral hazard suggests that even though workplace injuries may be declining over time (i.e., real safety has increased), reported claims will actually increase as real benefits increase.