Question
In: Economics
There are 200 people of two types on the road: good drivers and bad drivers. Good...
There are 200 people of two types on the road: good drivers and bad drivers. Good drivers (G) have a 1% chance of causing an accident while bad drivers (B) have a 5% chance of causing an accident. The proportion of bad drivers is 0.5, so the proportion of good drivers is 0.5. The cost of an accident is $6,000. Good drivers have a willingness to pay for insurance of $200 while bad drivers have a willingness to pay of $400.
b. Now suppose that the insurance company does not know the driver’s type. What would the insurance company’s expected profit be if it charged premiums based on the individual’s self-reported type?
PLEASE EXPLAIN WHAT -ve IS
c. Now suppose that the insurance company does not know the driver’s type. What premiums would the insurance company charge if they did not have any information on the driver’s type? Is there a pooling equilibrium?
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
There are two types of drivers on the road today, Speed Racers with a 5% chance...
There are two types of drivers on the road today, Speed Racers
with a 5% chance of an accident per year, and Low Riders with a 1%
change per year. There are an equal number of Speed Racers and Low
Riders. The cost of an accident is $12,000.
a. Suppose an insurance company knows with perfect information
each person’s type. What premium would they charge each type?
b. Now suppose there is asymmetric information, so the insurance
company doesn’t know...
There are two types of drivers on the road today, Speed Racers with a 5% chance...
There are two types of drivers on the road today, Speed Racers
with a 5% chance of anaccident per year, and Low Riders with a 1%
change per year. There are an equal number of SpeedRacers and Low
Riders. The cost of an accident is $12,000. Assume that there is
free entry into theinsurance market, the insurers always know the
relative shares of each type in the population, andfirms are
risk-neutral. Assume that your income is $12,000 in the absence...
There are two types of drivers on the road today, Speed Racers with a 5% chance...
There are two types of drivers on the road today, Speed Racers
with a 5% chance of anaccident per year, and Low Riders with a 1%
change per year. There are an equal number of SpeedRacers and Low
Riders. The cost of an accident is $12,000. Assume that there is
free entry into theinsurance market, the insurers always know the
relative shares of each type in the population, andfirms are
risk-neutral. Assume that your income is $12,000 in the absence...
There are two types of second hand laptop - good (G) and bad (B). A good...
There are two types of second hand laptop - good (G) and bad
(B). A good laptop is worth €700 to James and a bad laptop is worth
€200. Sarah has a laptop to sell. She values a good laptop as worth
€400 and a bad laptop worth €0. a) If James is risk neutral and
thinks there is 50 per cent chance Sarah has a good laptop should
he buy the laptop from Sarah? b) What if he thinks...
- Are people born good (and turn bad) or are they born bad (and with time,...
- Are people born good (and turn bad) or are they born bad (and
with time, this bad behavior emerges).
- Do you obey the speed limit at all times, and if not, under
what condition(s) would you make the 'choice' not to.
- Discuss the manner in which reward and punishment play a
significant role in your choices.
If possible, answer in paragraphs
Assuming that there are two types of radios on the market: good radios and bad radios....
Assuming that there are two types of radios on the market: good
radios and bad radios. Of the firms that manufacture radios, 50%
produce good radios and 50% produce bad radios. A good radio does
not break for five years, while a bad radio has a 50% chance of
breaking when it is first used. If the bad radio does not break
immediately, it works for five years, just like the good radio. A
good radio is worth $100 to...
Assume that there are two types of radios on the market: good radios and bad radios....
Assume that there are two types of radios on the market: good
radios and bad radios. Of the firms that manufacture radios, 50%
produce good radios and 50% produce bad radios. A good radio does
not break for five years, while a bad radio has a 50% chance of
breaking when it is first used. If the bad radio does not break
immediately, it works for five years, just like the good radio. A
good radio is worth $100 to...
1. Good versus Bad Debt. Is there such a thing as good debt, what types of...
1. Good versus Bad Debt. Is there such a thing as good debt,
what types of debt do you consider to be "good"? What types do you
consider to be "bad"?
2. Are you considered a default risk? How would a lender
evaluate you based on "the five C's" of character, capital,
capacity, collateral, and conditions? How could you plan to make
yourself more attractive to a lender in the future?
3. Some credit cards offer reward points or 1...
Discuss the characteristics of good and bad drivers related to healthcare cost allocations. Include the question...
Discuss the characteristics of good and bad drivers related to
healthcare cost allocations.
Include the question in your answer.
is autonomy good or bad?
is
autonomy good or bad?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Write a program in C++ that converts decimal numbers to binary, hexadecimal, and BCD. You are...
- 1. Project L costs $35,000, its expected cash inflows are $14,000 per year for 8 years,...
- What are some Motivations and techniques used for Advanced Persistent Threats (APT)? What are some events...
- Question 311.5 pts Process that restructures a bill of materials to consolidate demand for a component...
- Part#1 What are the default username and password for Kali Linux? How many bits is the...
- 1. Define a struct for a soccer player that stores their name, jersey number, and total...
- A wheel is rotating freely at angular speed 530 rev/min on a shaft whose rotational inertia...
ADVERTISEMENT