Mathematics, 16.03.2020 20:56, shawtybrown21

In deciding to park in an illegal place, any individual knows that the probability of getting a ticket is p and that the fine for receiving the ticket is f. Suppose that all individuals are risk averse (i. e., U00(W) < 0, where W is the individual’s wealth). Will a proportional increase in the probability of being caught or a proportional increase in the fine be a more effective deterrent to illegal parking? Hint: Use the Taylor series approximation U(W % f ) ¼ U(W) % f U0(W) þ ( f 2/2)U00(W).

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In deciding to park in an illegal place, any individual knows that the probability of getting a tick...