A farmer’s crop s worth $100,000 when the crop is successful which happens 90% of the time. But there is a 10% chance of a bug infestation destroying it, leaving him with $0. Suppose his utility is the square root of his income (U=square root of y) so his utility is (square root of $100,000 when the crop is successful and (square root of 0) when the bugs come. What would be the price, P of a risk-neutral insurance pan where the farmers pay P for sure in the farmer is willing to pay?
