 The welfare effect of income tax deductions for losses as insurance: Insured- versus insurer-sided adverse selectionT.C. Michael Wu and C.C. Yang Economic Modelling, 2012, vol. 29, issue 6, 2641-2645 Abstract: Kaplow (1992) shows in a complete-information environment that allowing income tax deductions for losses as partial insurance is undesirable in the presence of private insurance markets. This paper elaborates on Kaplow's finding by studying two extreme types of asymmetric information structures in private insurance markets: Either the insured or insurers possess superior information. It is shown that our derived result is consistent with Kaplow's if the insured have superior information; however, Kaplow's negative conclusion with respect to the income tax deduction will be overturned if insurers have superior information instead. A policy implication from our finding is that whether or not to allow an income tax deduction for losses needs to be more refined and, specifically, it should be tailored to the “adverse selection” information structures of private insurance. Keywords: Income tax deductions for losses; Informed insurer; Adverse selection (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:6:p:2641-2645 DOI: 10.1016/j.econmod.2012.08.011 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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