Reference no: EM131192229
Chimnesia has two equal-sized groups of people: smokers and nonsmokers. Both types of people have utility U = ln(C), where C is the amount of consumption that people have in any period. So long as they are healthy, individuals will consume their entire income of $15,000. If they need medical attention (and have no insurance), they will have to spend $10,000 to get healthy again, leaving them with only $5,000 to consume. Smokers have a 12% chance of requiring major medical attention, while nonsmokers have a 2% chance.
Insurance companies in Chimnesia can sell two types of policies. The "low-deductible" (L-) policy covers all medical costs above $3,000, while the "high-deductible" (H-) policy covers only medical costs above $8,000.
a. What is the actuarially fair premium for each type of policy and for each group?
b. If insurance companies can tell who is a smoker and who is a nonsmoker and charge the actuarially fair premiums for each policy and group, show that both groups will purchase the L-policy.
Suppose that smoking status represents asymmetric information: each individual knows whether or not they are a smoker, but the insurance company does not.
c. Explain why it is impossible, at any price, for both groups to purchase L-policies in this setting. Which groups, if any, do you expect to buy L-policies, and at what price?
d. Show that it is possible for both groups to purchase insurance, with one group buying L-policies and one group buying H-policies.
|
How high would the government have to set the tax
: Under each plan, how high would the government have to set the tax so that it would not expect to lose money on the plan?
|
|
Vulnerability assessment planning
: For this assignment, you will need to develop a vulnerability assessment plan. The concepts needed to complete this assignment are found in your reading assignment and in the unit lesson, but you can draw on all of the lessons thus far in this cou..
|
|
Presentation on it physical security referencing
: You are the CIO of an organization. You are briefing new IT employees that are going to be directly under your supervision. Develop a PowerPoint presentation on IT physical security referencing your textbook concerning the many things you would wa..
|
|
Create a coherently structured paper with an introduction
: Develop a coherently structured paper with an introduction, body, and conclusion. Provide three relevant and credible sources to support claims.
|
|
What is the actuarially fair premium for each type of policy
: What is the actuarially fair premium for each type of policy and for each group?- Show that it is possible for both groups to purchase insurance, with one group buying L-policies and one group buying H-policies.
|
|
Development of an effective approach to physical security
: Using the required reading and any other resources you might find helpful, write a paper regarding development of an effective approach to physical security within the project organization. Be sure to cover the following topics:
|
|
Find the length of qk
: In ΔPQR, PQ = 17.4 m and PR = 7.6 m. K lies on QR such that ∠PKQ = 137o. Find the length of QK
|
|
Development of an effective approach
: Using the required readings and any other resources you might find helpful, write a paper regarding development of an effective approach to integration of cryptography for your project organization. Be sure to cover the following topics:
|
|
Which person is more risk averse
: Which person is more risk averse? - Which person would pay the higher insurance premium to smooth consumption?
|