Consider a state in which automobile drivers are divided equally into two types of drivers: careful and reckless. The average annual auto-insurance claim is $400 for a careful driver and $1,200 for a reckless driver. Suppose that the state adopts an insurance system under which all drivers are placed in a common pool and allocated to insurance companies randomly. An insurance company cannot refuse coverage to any consumer it is assigned, but a consumer who is unhappy with the insurance company has the option of being reassigned (randomly) to another. By law, each insurance company must charge the same price to all its customers (i.e. no price discrimination). Assume that the insurance market is perfectly competitive and that claims represent all the costs associated with provision of insurance. Predict the minimum price of auto insurance under two alternative policy scenarios given below. Show all of your work and explain your answers. A. Auto insurance is mandatory B. Auto insurance is voluntar

Consider a state in which automobile drivers are divided equally into two types of drivers: careful and reckless. The average annual auto-insurance claim is $400 for a careful driver and $1,200 for a reckless driver. Suppose that the state adopts an insurance system under which all drivers are placed in a common pool and allocated to insurance companies randomly. An insurance company cannot refuse coverage to any consumer it is assigned, but a consumer who is unhappy with the insurance company has the option of being reassigned (randomly) to another. By law, each insurance company must charge the same price to all its customers (i.e. no price discrimination). Assume that the insurance market is perfectly competitive and that claims represent all the costs associated with provision of insurance. Predict the minimum price of auto insurance under two alternative policy scenarios given below. Show all of your work and explain your answers. A. Auto insurance is mandatory B. Auto insurance is voluntar

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In experiments in which participants voluntarily contribute to the provision of a public good, we often find a reduction in contributions in successive rounds of the experiment. We can explain this as Group of answer choices Evidence of participants reaching satiation and not wanting such high levels of the public good. Evidence of participants working out the Nash equilibrium outcome of the voluntary contribution game. Evidence of participants reducing cooperation to punish free riding. Evidence of participants learning how to play the game more effectively.
1) A key difficulty facing insurance companies is that people know more about their health than do insurance companies, and that those people who are seriously ill are the most likely to want to obtain health insurance. What is this phenomenon called? A) moral hazard B) economic irrationality C) asymmetric information D) adverse selection 2) An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above? A) moral hazard B) adverse selection C) asymmetric information D) economic irrationality 3) The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is A) inefficient market hypothesis. B) moral hazard. C) information disparity. D) asymmetric information. 4) Which of the following parties is…
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For questions 44 and 45 consider the following: The town of Fenerbahce has hired world-class econometricians to investigate their criminal justice system. The researchers report an interesting finding. People who were previously detected and punished by law enforcers gain a better understanding of the functioning of the law enforcement system, and are better able to exploit laws designed to protect defendants against the state. Thus, people who have been detected and punished before are better able to avoid detection and punishment. In particular, they report the following facts: The offense of jay-walking causes social harm of $100. A person who has never been punished for jaywalking before faces a 0.5 probability of being detected while jaywalking. A person who has been punished before for jaywalking faces a probability of 0.25 of being detected while jaywalking. The town wants to implement optimal punishment schemes. It is well known that everyone in Fenerbahce is risk-neutral and…
3.
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Could Question 13 be answered?
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