From: cbbrowne@csi.uottawa.ca (Christopher Browne)
Subject: Re: Maternity/paternity insurance
Organization: Dept. of Computer Science, University of Ottawa
Date: Mon, 11 Jan 93 16:50:08 GMT

In article <1993Jan11.154624.7643@galileo.cc.rochester.edu> landsbur@troi.cc.rochester.edu (Steven E. Landsburg) writes:
>Michal Leah Peri writes:
>
>>>I envision a "conception insurance" as a fund something along the lines
>>>of what social security was meant to be.  You pay money in, and if you
>>>concieve a child then you could take money out for the purposes of
>>>supporting that child.  
>
>and Ted Frank replies:
>
>>Now there's a moral hazard problem if I ever saw one.  Unless such
>>insurance was mandatory (in which case, the policy is essentially the
>>same as the government supporting all children), it could never work --
>>the "lemons" problem would predominate
>
>In what sense do you expect that the lemons problem would predominate
>over the moral hazard problem, and why?

Insurance in general is intended to allow the purchase of protection
from a risk.

There may be different classes of individuals that will have different
risk characteristics; this is why smokers tend to pay more for life
insurance than nonsmokers, and why young drivers pay more for auto
insurance than older, more experienced drivers.

What these groups have in common is the fact that there is no
particular INCENTIVE to fall prey to the problem.  For instance, it is
NOT advantageous to get in a car accident, because one risks injury,
and loses the deductible portion of the claim.

``Conception insurance'' would be a problem because it is something
that is not NEARLY as risky as these other things, in that it involves
an explicit act of will.

There is no particular difficulty in choosing actions that will
either:
a) Lead to conception, or
b) Not lead to conception.

Being able to properly value an "insurance" policy requires a fairly
rigorous control of the risk factors.

The MAJOR risk factor in ``conception insurance'' is the issue of what
sexual activities the claimant engages in.

A celibate individual would have a very low risk.  (Well, pretty much
zero risk.)

Someone who is very promiscuous would have a correspondingly high
risk.  Someone who is attempting to conceive would have (hopefully :-)
an EXTREMELY high risk.

The PROBLEM is the fact that it is VERY EASY for the claimant to
change the risk by changing their activities.

The only way that it could be made to work (i.e. - have a correct
price) is if claimants were required to report ALL sexual liaisons,
and perhaps be required to verify the use of "precautions" (i.e. - the
use of birth control devices).

This sounds fairly Orwellian, and frankly IS.  The point is that there
is no method of determining an appropriate pricing for ``conception
insurance'' that doesn't require pretty nasty invasion of privacy.

-- 
Christopher Browne                |     PGP 2.0 key available
cbbrowne@csi.uottawa.ca           |======================================
University of Ottawa              | Genius may have its limitations, but
Master of System Science Program  | stupidity is not thus handicapped.
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