Tax sharing in insurance market: A useful parametrization

Christelle Viauroux

No 11-132, UMBC Economics Department Working Papers from UMBC Department of Economics

Abstract: In this paper, we use a Principal-Agent model (à la Holmström) to evaluate the economic impacts at imposing a tax on insurance payment resulting from an optimal contract in presence of moral hazard. We show that, in most cases, the tax generates a disincentive for the risk averse insured to provide sufficient effort at maintaining care, hence increasing insurance payments. As a result, company's profit and overall welfare decrease. Simulations show that this last result can be reversed only in cases where the cost of effort is low and the perceived insurance quality is very high.

Keywords: moral hazard; taxes; principal-agent model; insurance (search for similar items in EconPapers)
JEL-codes: D8 H2 I18 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2011-10-05
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Citations: View citations in EconPapers (1)

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