= Cost of precaution, x ■ Accident harms, A(x) = 100 - x ■ Accident occurs with probability, p(x) = 1.01x Questions: 1. What is efficient precaution? leoni (loo-x) (1-0.0 (x)=.X. subseil (00-x-x+0₁0 (x² = x. 2. Suppose liability is imperfect and the polluter only held liable 90% of the time. What precaution, x, does the polluter take? 3. What precaution will firm take with a negligence rule that sets due care, xac = 70? 0.0 (x²-3x = 100.
= Cost of precaution, x ■ Accident harms, A(x) = 100 - x ■ Accident occurs with probability, p(x) = 1.01x Questions: 1. What is efficient precaution? leoni (loo-x) (1-0.0 (x)=.X. subseil (00-x-x+0₁0 (x² = x. 2. Suppose liability is imperfect and the polluter only held liable 90% of the time. What precaution, x, does the polluter take? 3. What precaution will firm take with a negligence rule that sets due care, xac = 70? 0.0 (x²-3x = 100.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter20: The Problem Of Adverse Selection Moral Hazard
Section: Chapter Questions
Problem 3MC
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Please no written by hand solutions
![Numerical example: liability
= Cost of precaution, x
Accident harms, A(x) = 100 - x
■ Accident occurs with probability, p(x) = 1 - .01x
Questions:
1. What is efficient precaution?
leoni (loo-x) (1-0.0 (x) =. X.
vbseib (oo-x-x+ 0₁0(x² = x.
2. Suppose liability is imperfect and the polluter only held liable
90% of the time. What precaution, x, does the polluter take?
3. What precaution will firm take with a negligence rule that sets
due care, xac =70?
Exp. horm (100-x)(1-0.01x).
0.0 (x²-3x = 100.
(0₁1x + 110.1X-](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa2f889bb-4f0b-42d7-849c-c8c6b31d68df%2Fd0c65ca6-e1df-4bd0-846d-0cc561cb90b5%2Fwt61tx5_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Numerical example: liability
= Cost of precaution, x
Accident harms, A(x) = 100 - x
■ Accident occurs with probability, p(x) = 1 - .01x
Questions:
1. What is efficient precaution?
leoni (loo-x) (1-0.0 (x) =. X.
vbseib (oo-x-x+ 0₁0(x² = x.
2. Suppose liability is imperfect and the polluter only held liable
90% of the time. What precaution, x, does the polluter take?
3. What precaution will firm take with a negligence rule that sets
due care, xac =70?
Exp. horm (100-x)(1-0.01x).
0.0 (x²-3x = 100.
(0₁1x + 110.1X-
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