Teenagers, Their Parents' Cars, and Subsequent Moral Hazard

Moral hazard, I love it so much! As soon as I learned the significance of this term, I’ve become cognizant of a plethora of everyday events in which people take substantial risks under the premises that he or she will not be financially responsible for potential damage. Students flunk out when parents pay tuition; employees print a thousand pages in color from the office; companies request bailouts after allocating colossal financial benefits without measuring costs. That being said, according to Besanko, moral hazard is defined as, “a phenomenon whereby an insured party exercises less care than he or she would in the absence of insurance” (chapter 15). The most obvious examples include the demand for insurance policies, etc. but what interests me in this topic is the moral hazard exercised by your average teenager who maintains financial dependence on his or her parents. We all knew the kid in high school who crashed his parent’s car, right? So for your viewing pleasure, I’ve attached a clip from youtube of a high school male, in all his glory, running his mom’s convertible into their porch:

http://www.youtube.com/watch?v=nMrDUctzVGo

Whew, good laughs all around. In terms of economic efficiency, it’s safe to say that a lack of accountability leads to massive amounts of moral hazard, which therein pave the way for reckless behavior, physical damage, subsequent financial reparations, and an all around inefficient allocation of resources. May these resources be primarily defined as personal disposable income of the party not subjected to moral hazard. It’s apparent that moral hazard is everywhere, from the tenth grade idiot to the insanely successful businessman. My question is, is there a way to eliminate moral hazard with a similar fortitude of Harry Truman when he claimed “The buck stops here”? Of course there are insurance premiums and deductibles, but what about the moral hazard of life? It’s easy to blame bad parenting or societal unaccountability, but it goes without question that moral hazard acts as a bridge between the world of economics and that of human nature.