Question VI Economics of insurance Risk Aversion=Declining MUI One implication is that the fact that people buy insurance is evidence That redistributive taxation can increase utility Although evidence short of proofas evidence usually is ·Adverse Selection Shows a reason not to limit insurance companies'ability to charge different rates to different customers Since if you can't charge bad risk rates to bad risks,insurance is a poor deal for good risks And everyone ends up paying bad risk prices or not getting insured Also an argument for forcing people to buy insurance so as to prevent adverse selection 。The value of life The value of my life to me is large,as shown by my choices So damages for tortious loss of life should include it ·Hedonic damages But it is finite,as shown by my choices,so regulations should not be infinitely cautious ·Economic efficiency Tort damages sufficient to make the victim whole:The argument for Pigouvian taxation The choice between property rules and liability rules Both are ways of moving goods to their highest valued use,which is the efficient outcome And sometimes one,sometimes the other,does it at lower costQuestion VI • Economics of insurance • Risk Aversion=Declining MUI • One implication is that the fact that people buy insurance is evidence • That redistributive taxation can increase utility • Although evidence short of proof—as evidence usually is • Adverse Selection • Shows a reason not to limit insurance companies’ ability to charge different rates to different customers • Since if you can’t charge bad risk rates to bad risks, insurance is a poor deal for good risks • And everyone ends up paying bad risk prices or not getting insured • Also an argument for forcing people to buy insurance so as to prevent adverse selection • The value of life • The value of my life to me is large, as shown by my choices • So damages for tortious loss of life should include it • Hedonic damages • But it is finite, as shown by my choices, so regulations should not be infinitely cautious • Economic efficiency • Tort damages sufficient to make the victim whole: The argument for Pigouvian taxation • The choice between property rules and liability rules • Both are ways of moving goods to their highest valued use, which is the efficient outcome • And sometimes one, sometimes the other, does it at lower cost