Madison, Wisconsin / USA - April 24th, 2020: Nurses at Reopen Wisconsin Protesting against the protesters protesting safer at home order rally holding signs telling people to go home.

Great Responsibility: Navigating Moral Hazards During COVID-19

By Jacqueline Salwa

Younger people may be driving the COVID-19 pandemic in part because they perceive the costs of complying with public health measures as higher and the expected benefits as lower compared with older individuals.

”Indemnifying Precaution: Economic Insights for Regulation of a Highly Infectious Disease,” a paper recently published in the Journal of Law and the Biosciences, explores how to align costs and benefits so that individuals of all ages adhere to precautions.

Younger people tend to experience less severe symptoms from COVID-19 infection, and may be disproportionately affected by other aspects of the pandemic.  These include depression from lack of social interaction, stifled career advancement, and difficulties with providing for dependents.  Compared to younger people, older people have a greater chance of being settled down, retired, and not responsible for dependents. As a result, those that  receive the least benefit from taking precautions, and incur the greatest personal costs for abiding by these precautions, have a lack of incentive to follow precautionary public health measures. This is known, in economic terms, as a moral hazard.

Moral hazards are commonly seen in the case of health insurance.  One example is the discussion surrounding how to prevent people from taking on risky behaviors, such as smoking, if they feel that they will be caught by the safety net of their insurance if something goes wrong. This is known as primary moral hazard, in which individual risks are externalized prior to any particular injury or illness. This stands in contrast to secondary moral hazard, a term that refers to risky or costly behaviors that occur after an individual’s initial incident (e.g., illness).

Primary moral hazard is key to understanding risk during the COVID-19 pandemic, given that the costs associated with illness are not necessarily incurred by the person making risky choices. To address this issue, Congress passed the Families First Coronavirus Response Act, which helps alleviate costs associated with COVID-19 testing and treatment.

But how to address the root cause? Care must be taken to identify the right incentives. For this, “Indemnifying Precaution” takes insights from agricultural infectious disease moral hazards. Bovine tuberculosis, like COVID-19, has been difficult to manage in the U.K. Though strict regulations require animal slaughter if the disease is discovered, and farmers receive  compensation for the dead animal, this may exacerbate the problem, as it removes some of the incentive for farmers to take preventative measures. In turn, bovine tuberculosis may spread from farm to farm.

This highlights the precarious nature of indemnifying precautions. In the context of the coronavirus pandemic, there are a few key concerns. Federal and state governments are limited in the extent to which they can restrict liberties. While there have been Supreme Court cases in the past that allow the government to encroach on public liberty for social good, the area is not without controversy. Still, states have found ways to enforce public health policy through citations for violating social distancing. This may be hard to enforce, though, as sending people to prison for violating the order is counterproductive — it may bring the disease into an already vulnerable prison population.  Therefore, governments must be creative.

Shame from violating social norms may work where the police have failed. Businesses that want to be perceived as safe and responsible have demarcated 6-foot intervals for social distancing and systematically disinfected carts, even when not required to by law.

Other solutions could include “immunity certificates” for those unable to spread the disease, potentially from previous infection. This, however, may give young people an incentive to get sick, without regard for consequences to the community.

While the government has taken some measures to alleviate costs to individuals through stimulus checks, this does not nearly cover costs for people who have lost their jobs. And as time passes, the stimulus funds get spent down. One possible solution could involve giving stimulus payments based on compliance with “stay at home” orders, making the bargain more explicitly tied to prevention.

As “Indemnifying Precaution” states, “[t]he key is to make compliance easier and cheaper than noncompliance, especially for those that would otherwise feel the greatest compulsion to not comply.” In this pre-vaccine era, we need to encourage young people to help rein in the pandemic.


Jacqueline Salwa is a 2L at Harvard Law School with a background in political science and public health.

The Petrie-Flom Center Staff

The Petrie-Flom Center staff often posts updates, announcements, and guests posts on behalf of others.

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