Assume that driving skill, S, varies throughout the population. Automobile insurers classify drivers into two categories: “Good” and “Bad”. Good drivers are those people who have driving skills above a threshold level of driving skill, S*. Bad drivers, on the other hand, have driving skills that fall below the threshold level, S*. Good drivers pay lower rates than Bad drivers. Additionally, assume that it’s common knowledge that Welsh are more skillful drivers than Scots, such that a higher proportion of the Welsh population has driving skills above S* than the Scottish population. Also assume that there is a law that prohibits insurers from learning a person’s driving skill. Suppose that drivers can decide to use a new device that will send credible real time driving data to their insurance company (e.g., speed, stopping distance, driving times, etc.) that allows insurers to correctly classify a driver as having skill greater than or less than S*. Which group would be most likely to invest in a lobbying campaign supporting a law that would prohibit the use of these new data collection devices? A) Welsh with driving skills greater than S* B) Scots with driving skills greater than S* C) Scots with driving skills less than S* D) Welsh with driving skills less than S*
Assume that driving skill, S, varies throughout the population. Automobile insurers classify drivers into two categories: “Good” and “Bad”. Good drivers are those people who have driving skills above a threshold level of driving skill, S*. Bad drivers, on the other hand, have driving skills that fall below the threshold level, S*. Good drivers pay lower rates than Bad drivers. Additionally, assume that it’s common knowledge that Welsh are more skillful drivers than Scots, such that a higher proportion of the Welsh population has driving skills above S* than the Scottish population. Also assume that there is a law that prohibits insurers from learning a person’s driving skill.
Suppose that drivers can decide to use a new device that will send credible real time driving data to their insurance company (e.g., speed, stopping distance, driving times, etc.) that allows insurers to correctly classify a driver as having skill greater than or less than S*. Which group would be most likely to invest in a lobbying campaign supporting a law that would prohibit the use of these new data collection devices?
A) Welsh with driving skills greater than S*
B) Scots with driving skills greater than S*
C) Scots with driving skills less than S*
D) Welsh with driving skills less than S*
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