Consider fines for speeding

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Consider fines for speeding. Assume that speeders can drive at either 75 mph or 90 mph (the speed limit is 65 mph), and that the probability of being caught at either speed is .01. Also, assume that the maximum possible fine is $10,000, which is set for driving at 90. (a) Suppose an individual has already decided to speed. Calculate the fine for driving at 75 that will discourage her from increasing her speed to 90 unless her gain from doing so is $50 or more. (b) Show that the same degree of marginal deterrence can be achieved by setting the fine at $10,000 for driving at either speed but pulling over those driving at 90 more frequently

Reference no: EM13981957

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