Choice of care. Retain the basic structure of the model in the section but now suppose that the loss probability varies continuously with care: p  p (a), p′  0, p″ 0. (a) Model the insured’s choice of...

Choice of care. Retain the basic structure of the model in the section but now suppose that the loss probability varies continuously with care: p  p (a), p′  0, p″ 0. (a) Model the insured’s choice of care for a given insurance contract (P, q). (b) Investigate its comparative static properties: how does optimal care vary with the y, L, P, q? What restrictions must be placed on preferences and the probability function for it to be true that increases in cover reduce care?