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QUESTION
Suppose we are given a bernouli utility function u(w)=ln(w).
Suppose we are given a bernouli utility function u(w)=ln(w). Considering a car insurance model, how do we find the fracton of bad drivers in the economy that would permit existence of separating equilibrium?
Initial wealth for both drivers=200
Loss=75
probability of good driver not accident=2/3
probability of bad driver not accident=1/3
