Discuss the rothchild-stiglitz model

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Question: Consider the basic Rothchild-Stiglitz model with asymmetric information and robust and frail individuals. Suppose the government imposes a tax-and-subsidy program. The program collects a tax t>0 from an individual when she is healthy, and subsidize the individual s>0 when she is sick.

A) Will a separating equilibrium be possible after the tax-and-subsidy program? Justify your answer on a version of the Rothschild-Stiglitz diagram.

Reference no: EM132207764

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