Inverse market demand, Applied Statistics

Assignment Help:

There are two types of drivers, high-risk drivers with an accident probability of 2=3 and low risk drivers with an accident probability of 1=3. In case of an accident the driver suffers a loss of 1. The initial wealth of both types of drivers is 2. Both types are expected utility maximizers with utility index u(z) = ln z.

(i) what is the maximum insurance premium that each type would be willing to pay to fully insure their accident risk?

(ii) there is an equal number of drivers of both types so that the overall accident prob- ability is 1=2. Assume that the government offers an insurance contract that has a premium of 1=2 and covers the full cost of the accident. Would the low risk types accept this contract?

(iii) Now assume that the government offers a full coverage contract that has a premium of 2=3 and a partial coverage contract with coverage C and premium C=3. Write down the inequality that must be satis?ed to ensure that high-risk types prefer the full coverage contract over the partial coverage contract.


Related Discussions:- Inverse market demand

Business forecasting, Meaning and Definitions of Business Forecasting T...

Meaning and Definitions of Business Forecasting The problem of business  forecasting  refers to the  analysis  of the past and  present economic  conditions. With  the objectiv

the npv of the book , Bill Clinton reportedly was paid $10 million to writ...

Bill Clinton reportedly was paid $10 million to write his book My Way. The book took three years to write. In the time he spent writing, Clinton could have been paid to make speech

Null and alternative hypothesis, 1) Suppose you want to test a hypothesis t...

1) Suppose you want to test a hypothesis that two treatments, A and B, are equivalent against the alternative that the response for A tend to be larger than those of B. You plan to

Skewness, Skewness Meaning and Definition  Literal meaning of skew...

Skewness Meaning and Definition  Literal meaning of skewness is lack of symmetry; it is a numerical measure which reveals asymmetry of a statistical series. According t

Flow chart for confidence interval, Flow Chart for Confidence Interval ...

Flow Chart for Confidence Interval We can now prepare a flow chart for estimating a confidence interval for μ, the population parameter. Figure

Data reduction, The PCA is amongst the oldest of the multivariate statistic...

The PCA is amongst the oldest of the multivariate statistical methods of data reduction. It is a technique for simplifying a dataset, by reducing multidimensional datasets to lower

Good measure of quality, Education seems to be a very difficult field in wh...

Education seems to be a very difficult field in which to use quality methods. One possible outcome measures for colleges is the graduation rate (the percentage of the students matr

Bienayme-chebyshev rule, This probability rule determined by the research o...

This probability rule determined by the research of the two mathematicians Bienayme' and Chebyshev, explains the variability of data about its mean when the distribution of the dat

Determine the lower and upper fences, To study the physical fitness of a sa...

To study the physical fitness of a sample of 28 people, the data below was collected representing the  number of sit-ups that a person could do in one minute.      10    12

Assumptions in regression, Assumptions in Regression To understand the...

Assumptions in Regression To understand the properties underlying the regression line, let us go back to the example of model exam and main exam. Now we can find an estimate o

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd