Question: 1. Now we consider one single person with x = 0.4. (15') (a) What is the maximum amount she is willing to pay for

1. Now we consider one single person with x = 0.4. (15') (a) What is the maximum amount she is willing to pay for a health insurance policy that covers the medical treatment in full, if she is risk-neutral? (5') (b) How will your answer to question 1 change if she is risk averse with utility function u(w) = w? (5') (c) How will your answer to question (a) change if she is risk averse and the policy requires a coinsurance of 20% with a deductible of 50 (i.e., the buyer should pay 50 deductible plus 20% of the total medical expenditure in excess of the deductible)? (5')

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a If the person is riskneutral they would be willing to pay the expected value of the medical treatment Since x 04 is the probability of needing the t... View full answer

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