Moral Hazard- Self Protection Assume in this case that T can be changed with effort, i.e. there exists a function (d Which represents lowering the probability at a cost d Now the consumer maximizes w.r. t both l and d 1-i(dv(r -pl-d)+r(du(r-Z+I-pi This yields F.o.C (1-m)DU(Y-p-)=m(1-p)U/(Y-Z+1Moral Hazard– Self Protection Assume in this case that can be changed with effort, i.e. there exists a function d which represents lowering the probability at a cost d. Now the consumer maximizes w.r.t. both I and d: 1 dUY pI d dUY Z I pI This yields F.O.C. 1 pU Y pI d 1 pU Y Z I