Help me understand, especially because I am not following all of the technical language. I see two different concepts at work. One concept is that the purchase of insurance (defined very broadly) itself affects behavior. If I have fire insurance, I am less careful with matches around the house, and more houses will burn down if there was no insurance. If I wear a helmet while driving a motorcycle, I will drive more recklessly, and there will be more motorcycle accidents than if no helmets. Let's define this change in behavior and expected outcome as "Moral Hazard."
The related concept, but different, is the consequences if the the costs of my behavior are relatively externalized. So if the costs of fire insurance are subsidized so that third parties help pay for my insurance, I would be willing to obtain more insurance than I would be willing to pay if I had to pay all of the costs myself, with the effect that the Moral Hazard is increased. If I know that others will pay my health costs if I get into a motorcycle accident, I will drive more recklessly and get into more accidents than if I had to pay my own expenses. Let's call this "Subsidized Moral Hazard." As a good free-marketer, I am against Subsidized Moral Hazard, but am entirely neutral regarding Moral Hazard. For instance, I don't see how we can determine in advance the "optimum" number of house fires. The answer can't be zero, because we would have to outlaw gas and electricity in homes, and ban all wood homes. All we can do is see what people do (assuming we are not dealing with Subsidized Moral Hazard). After saying all of this, I can't quite figure out what exactly you are criticizing regarding capitalist society and what will be different in a socialist society. Using my terminology, are you making value judgments about Moral Hazard? Do you think the problems of Subsidized Moral Hazard will be less in a socialist society than a capitalist society? David Shemano
