In deciding to park in an illegal place, any individual knows that the probability of getting a ticket is p and that the fine for receiving the ticket is f. Suppose that all individuals are risk averse (i. e., U00(W) < 0, where W is the individual’s wealth). Will a proportional increase in the probability of being caught or a proportional increase in the fine be a more effective deterrent to illegal parking? Hint: Use the Taylor series approximation U(W % f ) ¼ U(W) % f U0(W) þ ( f 2/2)U00(W).

See attachmrnt for comolete solving.

Step-by-step explanation:

Given that;

In deciding to park in an illegal place, any individual knows that the probability of getting a ticket is p and that the fine for receiving the ticket is f. Suppose that all individuals are risk averse (i.e., U00(W) < 0, where W is the individual’s wealth). Will a proportional increase in the probability of being caught or a proportional increase in the fine be a more effective deterrent to illegal parking? Hint: Use the Taylor series approximation U(W % f ) ¼ U(W) % f U0(W) þ ( f 2/2)U00(W).

See attachment

the simplified form is

step-by-step explanation:

we want to simplify the expression,

let us change the middle bar to a normal division sign to obtain,

we multiply the first fraction by the reciprocal of the second fraction to obtain,

we factor to obtain,

we cancel the common factors to get,

we simplify to get,

the correct answer is b