The deadweight gain of insurance taxation when risky activities are optional

David de Meza and Gang Xie

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Some risky activities are optional, for example motoring. Participation in them is most attractive for good risks, creating a tendency for advantageous selection in the associated insurance market. Taxing insurance consequently yields e¢ ciency gains when type is hidden. Results are strengthened if optimism is present. Finally, endogenising participation implies that the standard "positive correlation" test for the presence of policy relevant asymmetric information may fail.

Keywords: insurance; tax; deadweight gain; hidden types (search for similar items in EconPapers)
JEL-codes: D62 D82 G22 H21 (search for similar items in EconPapers)
Date: 2014-07
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Citations: View citations in EconPapers (1)

Published in Journal of Public Economics, July, 2014, 115, pp. 109-116. ISSN: 0047-2727

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Journal Article: The deadweight gain of insurance taxation when risky activities are optional (2014)
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