If drivers are risk averse,their utility of a certain outcome is greater than their utility of an expected value equal to the certain outcome.They will avoid the possibility of paying a parking ine more than would risk-neutral drivers. Therefore,a fine of less than $40 will maintain the current level of deterrence. c.(For discussion)What if drivers could insure themselves against the risk of parking fines?Would it make good public policy to permit such insurance？ Drivers engage in many forms of behavior to insure themselves against the risk of parking fimes such as parking blocksw way from their destination in a offer an insurance policy to pay fines if a ticket is received.Of course,the premium for such insurance would be based on each driver's probability of receiving a parking ticket and on the opportunity cost of providing service.(Note:full insurance leads to moral hazard problems,to be discussed in Chapter 17.) Public policy sould attempttomaximize between the and cost to all parties.Private insurance may ot be optimal,because of th increase in transactions costs Instead,as the city manager,consider offering another form of insurance,e.g.the selling of parking stickers,and give tickets for inappropriately parked cars. If drivers are risk averse, their utility of a certain outcome is greater than their utility of an expected value equal to the certain outcome. They will avoid the possibility of paying a parking fine more than would risk-neutral drivers. Therefore, a fine of less than $40 will maintain the current level of deterrence. c. (For discussion) What if drivers could insure themselves against the risk of parking fines? Would it make good public policy to permit such insurance? Drivers engage in many forms of behavior to insure themselves against the risk of parking fines, such as parking blocks away from their destination in a non-metered spot or taking public transportation. A private insurance firm could offer an insurance policy to pay fines if a ticket is received. Of course, the premium for such insurance would be based on each driver’s probability of receiving a parking ticket and on the opportunity cost of providing service. (Note: full insurance leads to moral hazard problems, to be discussed in Chapter 17.) Public policy should attempt to maximize the difference between the benefits and costs to all parties. Private insurance may not be optimal, because of the increase in transactions costs. Instead, as the city manager, consider offering another form of insurance, e.g., the selling of parking stickers, and give tickets for inappropriately parked cars