Moral Hazard in a Mutual Health Insurance System: German Knappschaften, 1867–1914

The <italic>Knappschaft</italic> was a mutual association through which German miners insured themselves against accident, illness, and old age. The <italic>Knappschaft</italic> underlies Bismarck's sickness and accident insurance legislation, and thus Germany's system today. This article focuses on moral hazard, which plagued the <italic>Knappschaften</italic> in the later nineteenth century. Sick pay made it attractive for miners to feign illness that made them unable to work. We outline the moral hazard problem the <italic>Knappschaften</italic> faced as well as the mechanisms they devised to control it, and then use econometric models to demonstrate that those mechanisms were at best imperfect.