哈佛大学：《中级微观经济学》（英文版）Lecture 8 Financial Markets

Now assume that the problem is to maxImize n that case, individuals maximize (1-丌)U(Y-pl,0)+丌U(Y-pl,L Where l indicates some sort of loss In this case, the first order condition is 1-Tpui(r -pl,0)=pui(r-pl,l

Now assume that the problem is to maximize: In that case, individuals maximize: 1  UY  pI, 0  UY  pI,L Where L indicates some sort of loss: In this case, the first order condition is: 1  pU1Y  pI, 0  pU1Y  pI,L

In the case that c=0, this implies that U1(r-pl,0)=U1(r-pl,D) What does this imply about the value of /? What does this tell you about betting on sports events? How about insuring the death of child parent, etc

In the case that c  0, this implies that: U1Y  pI, 0  U1Y  pI,L What does this imply about the value of I? What does this tell you about betting on sports events? How about insuring the death of child, parent, etc.?

Moral Hazard- Self Protection Assume in this case that T can be changed with effort, i.e. there exists a function (d Which represents lowering the probability at a cost d Now the consumer maximizes w.r. t both l and d 1-i(dv(r -pl-d)+r(du(r-Z+I-pi This yields F.o.C (1-m)DU(Y-p-)=m(1-p)U/(Y-Z+1

Moral Hazard– Self Protection Assume in this case that  can be changed with effort, i.e. there exists a function d which represents lowering the probability at a cost d. Now the consumer maximizes w.r.t. both I and d: 1  dUY  pI  d  dUY  Z  I  pI  This yields F.O.C. 1  pU Y  pI  d  1  pU Y  Z  I 