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The deadweight gain of insurance taxation when risky activities are optional

  • de Meza, David
  • Xie, Gang

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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File URL: http://www.sciencedirect.com/science/article/pii/S0047272714000498
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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 115 (2014)
Issue (Month): C ()
Pages: 109-116

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Handle: RePEc:eee:pubeco:v:115:y:2014:i:c:p:109-116
DOI: 10.1016/j.jpubeco.2014.02.004
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. B. Dahlby, 1981. "Adverse selection and Pareto improvements through compulsory insurance," Public Choice, Springer, vol. 37(3), pages 547-558, January.
  2. Coelho, Marta & de Meza, David, 2012. "Do bad risks know it? Experimental evidence on optimism and adverse selection," Economics Letters, Elsevier, vol. 114(2), pages 168-171.
  3. De Meza, D. & Webb, D.C., 2000. "Advantageous Selection in Insurance Market," Discussion Papers 0007, Exeter University, Department of Economics.
  4. Pierre-André Chiappori & Bernard Salanié, 1997. "Testing for Asymmetric Information in Insurance Markets," Working Papers 97-11, Centre de Recherche en Economie et Statistique.
  5. Liran Einav & Amy Finkelstein, 2011. "Selection in Insurance Markets: Theory and Empirics in Pictures," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 115-38, Winter.
  6. Alberto Bisin & Piero Gottardi, 2006. "Efficient Competitive Equilibria with Adverse Selection," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 485-516, June.
  7. Sandroni, Alvaro & Squintani, Francesco, 2007. "Overconfidence, Insurance and Paternalism," Economics Discussion Papers 8914, University of Essex, Department of Economics.
  8. Alma Cohen & Peter Siegelman, 2010. "Testing for Adverse Selection in Insurance Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 39-84.
  9. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
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  11. Bev Dahlby, 2008. "The Marginal Cost of Public Funds: Theory and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042509, March.
  12. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
  13. repec:rje:randje:v:37:y:2006:i:4:p:783-798 is not listed on IDEAS
  14. Koufopoulos, Kostas, 2009. "Optimal securities under adverse selection and moral hazard," Journal of Mathematical Economics, Elsevier, vol. 45(5-6), pages 341-360, May.
  15. Bruno Jullien & Bernard Salanié & François Salanié, 2007. "Screening risk-averse agents under moral hazard: single-crossing and the CARA case," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(1), pages 151-169, January.
  16. Pierre‐André Chiappori & Bruno Jullien & Bernard Salanié & François Salanié, 2006. "Asymmetric information in insurance: general testable implications," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 783-798, December.
  17. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
  18. Alma Cohen, 2005. "Asymmetric Information and Learning: Evidence from the Automobile Insurance Market," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 197-207, May.
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