Please answer 10. All figures, tables, data provided.

Suppose that an individual may live up to two periods. That is, the individual lives for certain during period t. In that period, his sub-utility function is given by: u(ct) = log ct. The individual survives period t and lives into period t+ 1 with probability p. If he is alive in period t + 1, then his state sub-utility function is given by:

u(ct+1) = log ct+1

and if he dies, he receives the fixed utility level B.

We make the following assumptions: 1. The individual has access to a perfect capital market. 2. The individual discounts the future at a rate of . 3. The individual's endowment is given by (t,t+1).

10. . How much current income is the individual Willing to forego to reduce his probability of death? . How much future income is he willing to forego? How do the two measures compare? Why? Explain clearly What accounts for the differences that you obtain in your answer. . How much is the individual Willing to pay for a 1% reduction in the probability of death? What is the implied value that he places on his life *that is, what is the statistical value of life? (Hint: To answer this question, use the indirect utility function to calculate the MRS between the probability of death and current income.) . Calculate the statistical value of life if the individual's state sub-utility function is given instead by: u (c) = 67\". What does your result imply about the relationship between risk aversion and the statistical value of life? Explain clearly. What is the equilibrium interest rate? How does it depend on the probability of death? What is the intuition? What will happen to interest rates as a result of the technological improvement? Does this make sense