Suppose that every driver faces a 4% probability of an
automobile accident every year. An accident will, on average, cost
each driver $13,000. Suppose there are two types of individuals:
those with $104,000.00 in the bank and those with $6,500.00 in the
bank. Assume that individuals with $6,500.00 in the bank declare
bankruptcy if they get in an accident. In bankruptcy, creditors
receive only what individuals have in the bank. Assume that both
types of individuals are only slightly risk...