Moral Hazard

For the most part, Delhian drivers seem far more skilled than all but a few American drivers that I’ve seen. They seem more focused, react faster and are less flustered by surprise then American counterparts. That said, their method of driving is ridiculous. Even accepting that they might lack the training that American drivers receive (and we don’t get much) what they do at times just lacks plain common sense. They take drive extraordinarily aggressively, exploit dangerous gaps and take needless risks.

They also generally lack car insurance. I’ve been in two minor car accidents while here, and in both the parties yelled at each other for a while, then drove off on a huff. In America there would still be yelling, but you’d also trade insurance numbers before stewing for the next few days.

Hold those two thoughts: aggressive driving and no insurance.

Economics has a concept called “moral hazard” which claims that a person who posses insurance for a particular activity tend to be more reckless in said activity than those without insurance. Sadly this seems to break down in Delhi, where most of the people do not have insurance. In such a context one would expect them to drive more carefully and defensively, since they would be the ones to absorb the cost of an accident. But that doesn’t happen. Instead they choose to drive dangerously.

So nobody has insurance, but everyone is acting recklessly. How is this possible? Is moral hazard wrong?

Or possible answer is that moral hazard does not apply when people do not have insurance; it merely predicts an increase in recklessness when insurance is present. But I don’t see how Delhians would drive even MORE recklessly than they do, short of actively driving into walls crash-test style.

Any other ideas out there? Am I badly misrepresenting moral hazard?