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Posts Tagged ‘moral hazard’

Straight A's If Your Roommate Dies?

Several students claimed in class that our university will give you straight A grades in the semester in which your roommate dies. I said I doubted this claim for two reasons. First, it creates a moral hazard: you are more likely to engage in behavior that would kill your roommate; you might even kill him/her yourself. Second, it will generate adverse selection — people will be more likely to want to room with the dying or those in bad health.

Given these difficulties (and the absurdity of the story), I am 99.99 percent sure that this is a local urban legend. A similar, equally implausible student urban legend at U.T.-Austin is that you receive free tuition for the rest of your college career if you are injured by a university-owned vehicle. I don’t see any adverse-selection problem here, but it sure creates a moral hazard!