Insurance and moral hazard

The idea that contract terms are often used to apportion the risks among parties is something we often try to impress on our students.   Every contract, of course, carries risk with it, but some carry more than others.

Elizabeth Winston (Whittier) points us to a story in the Los Angeles Times about insurance agents who write the policies for economically pointless and dangerous activities, like a vacation trek across Antarctica or a solo around-the-world cruise.  Balancing physical hazards and moral hazard is a tough job, particularly when dealing with people who think taking a cell phone along on a mountain climb is cheating.