=+b. Next, suppose that the local mafia is not quite as powerful and can only get jail sentences reduced, thus in effect raising x0

. It approaches Sunny to offer him a deal: Pay us p when you don’t get caught, and we’ll raise your consumption level if you do get caught by

b. If the local mafia insurance business is perfectly competitive (and faces no costs other than paying for increased consumption in jail), what is the relationship between b and p? (Hint: Note that this is different than the insurance example in the text where my wife had to pay p regardless of whether she was in the good or bad outcome.)