A model intervenes: the many faces of moral hazard

Latsis, J. and Repapis, C. (2014) A model intervenes: the many faces of moral hazard. Cambridge Journal of Economics, 38 (4). pp. 743-760. ISSN 1464-3545 doi: 10.1093/cje/bet069

Abstract/Summary

This article builds on advances in social ontology to develop a new understanding of how mainstream economic modelling affects reality. We propose a new framework for analysing and describing how models intervene in the social sphere. This framework allows us to identify and articulate three key epistemic features of models as interventions: specificity, portability and formal precision. The second part of the article uses our framework to demonstrate how specificity, portability and formal precision explain the use of moral hazard models in a variety of different policy contexts, including worker compensation schemes, bank regulation and the euro-sovereign debt crisis.