Moral Hazard on the Reporting of Health Problems: A Public–Private Comparison

• Author: Imanol Nuñez
• Published date: 01 December 2017
• Date: 01 December 2017
• DOI: http://doi.org/10.1177/0734371X15605146
• Subject Matter: Articles

Review of Public Personnel Administration

2017, Vol. 37(4) 452 –471

© The Author(s) 2015

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DOI: 10.1177/0734371X15605146

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Article

Moral Hazard on the

Reporting of Health

Problems: A Public–Private

Comparison

Imanol Nuñez1

Abstract

This study investigated the effect of moral hazard on the reporting of health problems

in the public sector. Moral hazard was demonstrated by a comparison between public

and private employees of self-reporting hard-to-diagnose health problems. Data for

the analysis were taken from a sample of over 120,000 workers from the U.K. 2010

Labour Force Survey. Results revealed that, against the posited hypotheses, the

opportunistic behavior was equal between public employees and permanent workers

from the private sector. However, differences were found in reporting behavior

between public employees and personnel with contractual positions where the risk

of unemployment was higher.

Keywords

occupational health, moral hazard, monitoring, public employment, United Kingdom

Introduction

The interest in occupational health reporting has recently grown, mainly because the

costs of occupational health problems have markedly risen in modern societies

(International Labor Organization [ILO], 2004). Despite the fact that occupational

accidents and sicknesses largely depends upon decisions taken by firms and workers,

some of the costs and social consequences are transferred to society (Pouliakas &

Theodossiou, 2013). Regulations and legal systems worldwide usually provide some

1Universidad Publica de Navarra, Pamplona, Spain

Corresponding Author:

Imanol Nuñez, Business Administration Department, Universidad Publica de Navarra, Campus de

Arrosadia s/n, Pamplona 31006, Spain.

Email: imanol.nunez@unavarra.es

605146ROPXXX10.1177/0734371X15605146Review of Public Personnel AdministrationNuñez

research-article2015

Nuñez 453

protection against the consequences of occupational injuries and diseases, including

the right to fair compensations and extended health care services for workers.

Moreover, as technology improves, medical services not only become progressively

more effective and complete but also are more expensive. As an illustrative figure,

ILO (2003) revealed that annually on the job accidents and illnesses take some two

million lives and cost the global economy an estimated US$1.25 trillion (US$1,250,000

million U.S. dollars), approximately 4% of world’s gross domestic product (GDP).

According to several studies, the problem of absenteeism is particularly grave in

the public sector, where workers are expected to claim more sick leaves (Banerjee &

Duflo, 2006). Differences on the incidence between public and private sector workers

are as high as 20% to 40% depending on the country or industry (De Paola, Scoppa, &

Pupo, 2014). These differences may be explained by two different reasons. First, the

public sector may include some occupations and jobs where occupational risk is higher

(e.g., health services or police), and therefore, workers may need to claim more “real”

sick leaves. Second, same as in other sectors, workers in the public sector may benefit

from the informational asymmetries associated to some pathologies such as musculo-

skeletal or psychological problems, and claim some fraudulent sick leaves, giving way

to a moral hazard problem.

The theoretical particularities of the moral hazard problem in the public sector are

well established. Moe (1984), by analyzing how politicians control public bureaucrats,

established the theoretical link of the principal–agent problem to the public adminis-

tration. More recently, Miller (2005) proposed an application of this theory to public

decision making, concluding that the moral hazard problem may affect differently,

and, more intensely, public organizations. However, empirical studies that analyze

moral hazard within the employment relation, in general, and in the public administra-

tion, in particular, are scarce. In the field of health reporting, Butler, Gardner, and

Gardner (1998) estimated the negative impact on productivity and efficiency of moral

hazard in occupational health reporting. More recently, Butler, Baldwin, and Johnson

(2006) also estimated the productivity losses of occupational injuries after returns to

work. This negative effect of opportunistic behavior in health problem reporting may

be particularly intense among public employees, as the form of contractual relation-

ship between workers and administration may affect their motivation and incentive to

level of work effort (Wright, 2001).

This study investigated, first, whether moral hazards affect the reporting of health

problems in the public sector and, second, whether the level of moral hazard is higher

in the public sector than in the private sector. I argue that there are several contractual

and organizational factors that are specific to the public sector and may have an impact

on moral hazard. Four types of employment forms are taken into consideration: per-

manent public employment, permanent private employment, temporary employment,

and self-employment. Briefly, the results confirm that occupational health reporting is

affected by moral hazard. They also reveal that the risk of dismissal is an effective

disciplinary device, and therefore, some level of opportunistic behavior is associated

to public employment. However, the analysis provides no evidence of any increase in

opportunistic behavior due to the organizational features of public organizations.