b. (2 points) Suppose that Willy has contracted for insurance that pays him Sr i
ID: 3693286 • Letter: B
Question
b. (2 points) Suppose that Willy has contracted for insurance that pays him Sr in the event of a flood. Note that this costs him an insurance premium of $.1x that must be paid whether or not there is a flood. Write an expression for Willy's expected utility as a function of . c. (4 points) Find the optimal amount of insurance, a, that maximizes the expected utility you determined in part (b). (Note: You will have to use chain rule to determine the first order condition.) d. (4 points) With the insurance policy that you found in part (e), how much wealth will Willy have in the event of a flood? If there is no flood? Explain the intuition for your result. Question 5 (16 points) Everyone in Los Angeles lose all their wealth in medical costs. There are two types of individuals: high risk (H) a High risk individuals have a high probability P1- of h a probability PL- of having the disease where 1 2 a 20. Each individual knows their own risk type. All individuals have initial wealth Wo > 0 and utility function uWW has an independent risk of having a very serious illness that will cause them to dividuals have a high probability PHof having the disease, while low-risk individuals have of having the disease. The proportion of low risk individuals in the population is a cannot determine who is high risk and who is low risk. It offers full insurance coverage An insurance company against the loss of wealth in the event of illness and sets the insurance premium to be actuarially fair (zero economic profits for the insurance company). a. (4 points) If everyone is buying the full insurance policy, what is the actuarially fair price? Note that your answer will depend on a and WoExplanation / Answer
DtGV, the German Association for Consumer Studies, has tested 9 German parcel delivery services and looked at their prices, service and quality of shipping. GLS was the overall winner and also had the best delivery time. Hermes was rewarded with offering the best service, while DHL had the best prices and highest quality of shipping.
Christmas is near, so the delivery of packages will reach its annual high. And the sooner the holiday season starts, the more important it is to have a reliable service that operates on time, so customers are certain their gifts will arrive without any problems and in time for the holidays.
That’s why DtGV conducted the study in cooperation with N24. It looked at the following 9 parcel delivery companies: Cargo International, Der Courier, DHL, DPD, GLS, Hermes, iloxx, paket.ag and UPS.
By “mystery shopping” DtGV measured the performances of the companies in several test areas. It let specially qualified testers ship packages throughout Germany. The criteria were divided into four different weightings, depending on their relevance:
– Service (20% of the total score): Was pick-up or drop-off going smoothly? How were customers treated?
– Shipping time (30%): How long did it take for the test packages to arrive?
– Shipping quality (20%): Did the package and contents arrive without any damage?
– Prices (30%): What are the prices for parcel delivery within Germany and abroad for pick-up or drop-off?
When it comes to service, most parcel companies achieved quite good results, DtGV says. Only with two companies the testers had some problems with finding and understanding the appropriate form to make a parcel collection assignment.
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