a. What is the EVPI for Hugh Liedtke regarding Texaco's reaction to a counteroffer of $5 billion'7 Can you explain this result intuitively? b. The timing of information acquisition may make a difference. i. For example, suppose that Liedtke could obtain information about the final court decision before making his current decision (take the $2 billion or counteroffer $5 billion). What would be EVPI of this information 7 ii. Suppose that Liedtke knew he would be able to obtain perfect information only after he has made his current decision but before he would have to respond to a potential Texaco counteroffer of $3 billion. What would be EVPI in this case? c. In part b, EVPI for (ii) should be less than EVPI calculated in (i). Can you explain why? (Incidentally, if your results disagree with this, you should check your calculations!)

a. What is the EVPI for Hugh Liedtke regarding Texaco's reaction to a counteroffer of $5 billion'7 Can you explain this result intuitively? b. The timing of information acquisition may make a difference. i. For example, suppose that Liedtke could obtain information about the final court decision before making his current decision (take the $2 billion or counteroffer $5 billion). What would be EVPI of this information 7 ii. Suppose that Liedtke knew he would be able to obtain perfect information only after he has made his current decision but before he would have to respond to a potential Texaco counteroffer of $3 billion. What would be EVPI in this case? c. In part b, EVPI for (ii) should be less than EVPI calculated in (i). Can you explain why? (Incidentally, if your results disagree with this, you should check your calculations!)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 1SCQ: For each of the following purchases, say whether you would expect the dogma of imperfect information...

See similar textbooks

Similar questions

What is the problem of moral hazard?
Why is there asymmetric information in the labor market? What signals can an employer look for that might indicate file traits they are seeking in a new employee?
Which of he following stalements about lhe Time Limil on Certain Defenses provision in an Accident and Heallh policy is CORRECT? A.It specifies the period of time after which an insurance company can deny a claim on he basis of the claim having pre-existed before the effective dale of coverage. B.It specifies the period of lime during which the insured must submit Proof of Loss. C.It prohibits legal actions against the insurance company after a specified period of time. D.It prevents an insurance company from maki any changes to a policy after il is issued.
Under the Consideration clause in a Major Medical policy, he insurance company's consideration to an insured is he promise to A.renew the policy annually on payment of premium B.pay benefils as staled in the policy C.return the premiums paid for up to 6 months after the effective dale if lhe insured is dissalisfied with the policy D.waive the Inconteslable clause
A consumer’s demand for a medical service is as follows: Q = 100 – P, where P is theout-of-pocket price she actually faces. Assume this medical service has a market price of $70.This consumer is considering four different insurance options: no insurance, full insurance, a 50% coinsurance plan, and a copayment plan with a $25 co-pay Calculate the deadweight loss under each insurance scheme and show iton each graph. What do you observe?
do this ignore leacture information
For each of the following kinds of insurance, give anexample of behavior that reflects moral hazard andanother example of behavior that reflects adverseselection.a. health insuranceb. car insurancec. life insurance
Define deductibles, copayments, and coinsurance.
How can moral hazard lead to more costly insurance premiums than one was expected?
What is an actuarially fair insurance policy?
For each of the following purchases, say whether you would expect the dogma of imperfect information to be relatively high or relatively low: Buying apples at a roadside stand Buying dinner at the neighborhood restaurant around the comer Buying a used laptop computer at a garage sale Ordering flowers over the internet for your friend in a different city
Why might it be difficult for a buyer and seller to agree on a price when imperfect information exists?