This preview shows page 1. Sign up to view the full content.
Unformatted text preview: x -5000 and u ( x ) = 2 x + 5000 if x <-5000. (a) Find the insurance contract that the monopolist risk-neutral company will oer this driver if there is no moral hazard (for example the company can enforce the customers to drive carefully). (b) What happens if the company oers the same contract when moral hazard is possible? What is the minimal price that the company can charge for a contract with a zero deductible under moral hazard? (c) What is the prot maximizing contract for the monopolist risk-neutral company under moral hazard? (d) What is the loss in the average prot for the company that results from moral hazard? 5. Can you repeat these steps if the utility index is u ( x ) = log( x + 20000)?...
View Full Document
- Spring '09