Megan McArdle still doesn’t have any multivariate regressions on her site, but she does have a clear description of how moral hazard can lead to economically inefficient investment decisions. She relates this to the social security privatization debate.

For me, the bottom line is that current social security goes to fund government, which is just about the least economically efficient use possible. Even so, I am willing to grant, for the sake of argument, that the government can offer a “return” of 1.25% on social security money. That’s 25% of the lowball estimate of US equity returns. Moral hazard would have to decrease average equity returns by 75% before a privatized social security system became a worse deal than the current system.