> All I can say is you clearly don’t understand what moral hazard is, because my example is a textbook (literally) example of it. [
https://www.merriam-webster.com/dictionary/moral%20hazard][h...
This random example is interestingly at odds with all the other definitions and example on that very web page!
> If the owner won’t lose out on the payout from insurance by committing arson, or could plausibly get away with it without getting caught, he is experiencing a moral hazard to commit arson.
This makes zero sense, because in that line of reasoning, the moral hazard is always there no matter what the policy is about arson: “all the owner needs to do” is to commit arson without being caught, which is exactly the same thing whether or not arson is excluded from the policy, since committing arson on your own good to receive payment from insurance is insurance fraud anyway.
The only thing that changes if arson is excluded is if the arson is committed by somebody else!
> Either way, that the insurance policy would pay him if he burnt his place down is literally the moral hazard.
But you are making things up! This particular moral hazard would only exist if insurance fraud was not a crime in itself, which it is already! And as such, there can be no such moral hazard, because no insurance company is to pay a dude that burns down his own place no matter if there's an exclusion about arson in their contract.
> That they would exclude if he did it himself, and would investigate it, is what the company is doing to attempt to mitigate that moral hazard. But it always exists.
The company would have to do no investigation and it would do no mitigation, as it would be the police investigating to protect public order.
AS I said before, the moral hazard would only exist in a place where insurance fraud is not recognized as a fraud.
Saying that this a moral hazard is like saying that bank robbery is a moral hazard on the perspective of banks, and that's clearly not what this phrase means.