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The deadweight gain of insurance taxation when risky activities are optional

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  • de Meza, David
  • Xie, Gang

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 deadweight 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.

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  • de Meza, David & Xie, Gang, 2014. "The deadweight gain of insurance taxation when risky activities are optional," Journal of Public Economics, Elsevier, vol. 115(C), pages 109-116.
    • Handle: RePEc:eee:pubeco:v:115:y:2014:i:c:p:109-116
    DOI: 10.1016/j.jpubeco.2014.02.004
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    Cited by:

    1. de Meza, David & Webb, David C., 2017. "False diagnoses: pitfalls of testing for asymmetric information in insurance markets," LSE Research Online Documents on Economics 65744, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    Insurance; Tax; Deadweight gain; Hidden types;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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