Thursday, August 10, 2017

Moral hazard from Sicilian volunteers (volunteer firefighters)

From Tyler Cowen.

When economists use the term "moral hazard" they mean the fact that when people buy insurance, they might not be as careful as they were before. For example, if you don't have fire insurance for your house, you will be very careful not to create fire hazards. But once you buy insurance, you might not go to as much effort to make sure everything is safe. But that increases the chance that fires will happen.

In this case, the paying of the firefighters for how much they work is the moral hazard. They have an incentive to start fires.
"Fifteen volunteer firefighters have been arrested in Sicily on suspicion of starting wildfires and reporting non-existent blazes so they could earn €10 (£9) an hour for putting them out.
Police in Ragusa province, in the south of the Mediterranean island, said the fire department became suspicious when it emerged that the auxiliary brigade had responded to 120 incidents compared with just 40 tackled by other volunteer teams over the same period
The brigade commander, a refrigeration technician identified as DDV, was deemed dangerous enough to be held under house arrest, the Ansa news agency reported, because he was suspected off continuing to start fires after others had stopped.
Most of the remaining team members, whose private phone calls were recorded as part of the investigation, have since admitted calling the 115 emergency number or getting friends or relatives to do so.
Here is the full story."

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