Two-tier policy. Now assume that insurance is provided only by the government (which cannot observe care). Show that it may be possible to achieve the full efficient information allocation by a...

Two-tier policy. Now assume that insurance is provided only by the government (which cannot observe care). Show that it may be possible to achieve the full efficient information allocation by a suitable insurance and tax-subsidy policy. [Hint: there is now only a single breakeven constraint on tax policy and the insurance contract.]