Hazards Technology and Fairness (1986) / Chapter Skim
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Pages 148-149
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DESIGNING INCENTIVE SYSTEMS FOR PROTECTIVE ACTIVITIES Let us now examine the case where individuals are considering whether to adopt protective actions such as wearing a seat belt or purchasing a car with an air bag. This action involves some ex ante cost ~ C)
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From page 149... ...
In the following example, each potential victim is assumed to have an identical utility function U and initial wealth W so that their choice about whether to adopt a protective activity is depicted by the decision tree in Figure 1 .l,2 For the special case where individuals are risk-neutral, the following simplified decision rule emerges:
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