Stiglitz model with asymmetric information

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Reference no: EM131094707

Consider the basic Rothschild - Stiglitz model with asymmetric information and two types on consumers. A policymaker who has taken this class suggests that is might be beneficial to impose a flat tax on healthy people and distribute the tax revenue to sick people, provi ding partial insurance to people.

After the tax is implemented a recession hits and a new policymaker decides to make up for a tax revenue shortfall by expanding the tax to include sick people as well as healthy people. Will a separating equilibrium be possible in the insurance market under this policy?

Reference no: EM131094707

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