A tax on healthy people. Consider the basic Rothschild-Stiglitz model with asymmetric information and robust and frail customers. a. Suppose the government imposes a Wellness Tax τ > 0, on robust and frail types but collects on this tax only when they are healthy (that is, there is no tax if they turn out to be sick). Will a separating equilibrium still be possible? Draw a version of the Rothschild-Stiglitz diagram to support your answer. b. Will a separating equilibrium be possible if the tax τ > 0, is imposed on all customers in both sick and healthy states? Again, support your answer graphically.

A tax on healthy people. Consider the basic Rothschild-Stiglitz model with asymmetric information and robust and frail customers. a. Suppose the government imposes a Wellness Tax τ > 0, on robust and frail types but collects on this tax only when they are healthy (that is, there is no tax if they turn out to be sick). Will a separating equilibrium still be possible? Draw a version of the Rothschild-Stiglitz diagram to support your answer. b. Will a separating equilibrium be possible if the tax τ > 0, is imposed on all customers in both sick and healthy states? Again, support your answer graphically.

EBK HEALTH ECONOMICS AND POLICY

7th Edition

ISBN:9781337668279

Author:Henderson

Publisher:Henderson

Chapter5: Demand For Health And Medical Care

Section: Chapter Questions

Problem 3QAP

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10. Consider the following figure of the Rothschild-Stiglitz model: Sick ZPL H A ZPL L Healthy a) Is (A, B) a separating or pooling equilibrium? b) Suppose the economy has 90% low risk types and 10% high risk types. Draw the average zero profit line. c) What happens to the contract (A, B)? Explain why.
10. Consider the following figure of the Rothschild-Stiglitz model: Sick ZPL L ZPL H A B H E Healthy a) Is (A, B) a separating or pooling equilibrium? b) Suppose the economy has 90% low risk types and 10% high risk types. Draw the average zero profit line. c) What happens to the contract (A, B)? Explain why.
I do not need the graph, just help with the explanation. Thank you:) A tax on healthy people. Consider the basic Rothschild-Stiglitz model with asymmetric information and robust and frail customers. Suppose the government imposes a Wellness Tax τ > 0, on robust and frail types but collects on this tax only when they are healthy (that is, there is no tax if they turn out to be sick). Will a separating equilibrium still be possible? Draw a version of the Rothschild-Stiglitz diagram to support your answer.
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