(Solved):Consider moral hazards, suppose Mr. Lin would like to purchase some insurance for his property. The value of the property is $100,000. The probability of having a fire is 0.01%, which may totally d… View Answer…

 

Question

Consider moral hazards, suppose Mr. Lin would like to purchase some insurance for his property. The value of the property is $100,000. The probability of having a fire is 0.01%, which may totally destroy the value. Mr. Lin can hire an agent to take care of his property and entirely remove the risk, with a cost of 0.5% of the value of the property.

If Mr. Lin does not have any

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