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Problem 6. Solve the following problems of insurance choice in the pres- ence of uncertainty studied in Chapter 12 both analytically and graphically: maxtU (Ca)
Problem 6. Solve the following problems of insurance choice in the pres- ence of uncertainty studied in Chapter 12 both analytically and graphically: maxtU (Ca) + (1 - 1) U (Cna) c,R s.t. m - 7L Cna n 7 Ca 1-9 under the following utility functions: = UC) U (C) U (C) = 01/2 TU (ca) + (1 - 1) U (Cna) = mca + (1 7) Cna TU (ca) + (1 - 7) U (Cna) = c/2 + (1 - 7) 1/2 TU (ca) + (1 7) U (Cna) = aca + (1 - 1) cha c2 = where Cna and Ca is consumption in non-accident and accident states, respec- tively; m is income; L is loss from the accident; y is the price of insurance and a is the probability of accident. Problem 6. Solve the following problems of insurance choice in the pres- ence of uncertainty studied in Chapter 12 both analytically and graphically: maxtU (Ca) + (1 - 1) U (Cna) c,R s.t. m - 7L Cna n 7 Ca 1-9 under the following utility functions: = UC) U (C) U (C) = 01/2 TU (ca) + (1 - 1) U (Cna) = mca + (1 7) Cna TU (ca) + (1 - 7) U (Cna) = c/2 + (1 - 7) 1/2 TU (ca) + (1 7) U (Cna) = aca + (1 - 1) cha c2 = where Cna and Ca is consumption in non-accident and accident states, respec- tively; m is income; L is loss from the accident; y is the price of insurance and a is the probability of accident
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