Tax Deductions for Losses and Equilibrium in Competitive Insurance Markets

Chu-Shiu Li (), Chwen-Chi Liu () and Chen-Sheng Yang ()

Atlantic Economic Journal, 2010, vol. 38, issue 1, 63 pages

Abstract: This paper examines how tax deductions related to uninsured personal losses may be Pareto-improving if there are inefficiencies in insurance markets in the context of adverse selection by including individuals with different risk types. In the absence of moral hazard, we provide a positive view of loss deduction policies by showing that they more easily reach a separating equilibrium than does the free market in the Rothschild and Stiglitz equilibrium concept. Copyright International Atlantic Economic Society 2010

Keywords: Tax deduction; Insurance premium; Adverse selection; Separating equilibrium; D82; H24 (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1007/s11293-009-9210-x

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