1. Solve the case of Moral hazard and uncertainty. See table below: Driving accident No accident...
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1. Solve the case of Moral hazard and uncertainty. See table below: Driving accident No accident Carefully Probability 0.25 0.75 loss $10,000 0 Without care Probability 0.75 0.25 2. Make cases when insurance is or is not included. Analyze your results. Loss $10,000 0 3. For both cases, alter the probabilities of having an accident or not having an accident if you drive carefully or not. Specifically, you have a 30% chance of having an accident if you drive carefully and a 70% chance of not having an accident if you drive carefully. Reverse these percentages if you drive carelessly. 4. Do your initial results change, i.e., does having insurance change the person's incentive to drive without caution? 1. Solve the case of Moral hazard and uncertainty. See table below: Driving accident No accident Carefully Probability 0.25 0.75 loss $10,000 0 Without care Probability 0.75 0.25 2. Make cases when insurance is or is not included. Analyze your results. Loss $10,000 0 3. For both cases, alter the probabilities of having an accident or not having an accident if you drive carefully or not. Specifically, you have a 30% chance of having an accident if you drive carefully and a 70% chance of not having an accident if you drive carefully. Reverse these percentages if you drive carelessly. 4. Do your initial results change, i.e., does having insurance change the person's incentive to drive without caution?
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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