Which policy would lead to a larger reduction in littering

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Suppose that your city government is interested in reducing littering. Currently, there is a $100 fine for littering and there is a 10 percent probability of being caught if you litter. The city deciding between two different policies: (1) It can increase the number of police that monitor littering, which would make the probability of being caught if you litter 20 percent rather than 10 percent; or (2) it can keep the monitoring the same yet raise the fine for littering from $100 to $200. (Notice that both policies have the same expected cost of littering.) If litterers are risk averse, which policy would lead to a larger reduction in littering? What if litters are risk loving (that is, they have a concave utility function, and so prefer an uncertain outcome to the certain outcome with the same expected cost)?

Reference no: EM13838015

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