Suppose we are given a bernouli utility function u(w)=ln(w).

Suppose we are given a bernouli utility function u(w)=ln(w). Considering a car insurance model, how do we find the fracton of bad drivers in the economy that would permit existence of separating equilibrium?

Initial wealth for both drivers=200

Loss=75

probability of good driver not accident=2/3

probability of bad driver not accident=1/3