State-Contingent Budget Constraints Buy $K of accident insurance cna=myK.(yK为 premium(保费) Ca=m4L-yK+K=m-L+(1-Y) K So(K(Ca-m+L)(1-r And Cna =m-y(ca-m+ L/(1-y) Le m-y y na 1-y a
State-Contingent Budget Constraints Buy $K of accident insurance. Cna = m - K. （ K 为premium(保费)） Ca = m - L - K + K = m - L + (1- )K. So K = (Ca - m + L)/(1- ) And Cna = m - (Ca - m + L)/(1- ) I.e. C m L na = Ca − − − − 1 1
State-Contingent Budget Constraints m- y ni na 1-y1-y a The endowment bundle m-L m-c
State-Contingent Budget Constraints Cna Ca m The endowment bundle. m −L C m L na = Ca − − − − 1 1 m − L
State-Contingent Budget Constraints m- y ni na 1-y1-y a The endowment bundle slope m-L m-c
State-Contingent Budget Constraints Cna Ca m The endowment bundle. slope = − − 1 C m L na = Ca − − − − 1 1 m −L m − L
State-Contingent Budget Constraints m- y ni na 1-y1-y a The endowment bundle r Where is the slope 2 most preferred state-contingent consumption plan? m-L m-c
State-Contingent Budget Constraints Cna Ca m The endowment bundle. Where is the most preferred state-contingent consumption plan? C m L na = Ca − − − − 1 1 slope = − − 1 m −L m − L
Preferences Under Uncertainty 2 states of nature At probability Ta consumption is a At probability Tna, consumption is na +兀=1 Utility is U(ca, Cna, Tay Tna)
Preferences Under Uncertainty 2 states of nature: –At probability a , consumption is ca –At probability na , consumption is cna – a + na = 1. Utility is U(ca , cna, a , na)