There are two types of drivers on the road today speed

Assignment Help Public Economics

Reference no: EM13376072

There are two types of drivers on the road today. Speed Racers have a 5% chance of causing an accident per year, while Low Riders have a 1% chance of causing an accident per year. There are the same number of Speed Racers as there are Low Riders. The cost of an accident is $12,000.

a. Suppose an insurance company knows with certainty each driver's type. What premium would the insurance company charge each type of driver?

b. Now suppose that there is asymmetric information so that the insurance company does not know with certainty the driver's type. Would insurance be sold if:
(i) drivers self-reported their types to the insurance company?

(ii) no information at all is known about individual driver's types?

If you are uncertain whether insurance would be sold, explain why.

Reference no: EM13376072

Questions Cloud

A logic circuit has two 2-bit unsigned binary numbers x10 : a logic circuit has two 2-bit unsigned binary numbers x10 and y10 as the inputs and it has two 1-bit outputs. one of

The economy consists of a single individual who represents : the economy consists of a single individual who represents a large number of homogenous individuals. this

Suppose that an individuals demand curve for doctor visits : suppose that an individuals demand curve for doctor visits per year is given by the equation q 10 - 110p where q is

Consider an income guarantee program with an income : consider an income guarantee program with an income guarantee of 3000 and a benefit reduction rate of 50. a person can

There are two types of drivers on the road today speed : there are two types of drivers on the road today. speed racers have a 5 chance of causing an accident per year while

Question your utility function is u ln2c where c is the : question. your utility function is u ln2c where c is the amount of consumption you have in any given period. your

1 in problem 1 if charlies utility function were x5axb if : 1. in problem 1 if charlies utility function were x5axb if apples cost 70 cents each and if bananas cost 10 cents each

1 in problem 1 charlie has a utility function uxa xb xaxb : 1. in problem 1 charlie has a utility function uxa xb xaxb the price of apples is 1 and the price of bananas is 2. if

1 suppose a perfectly competitive firm is faced with the : 1. suppose a perfectly competitive firm is faced with the following relationship between total cost and the quantity of

User Account

All Pages