A health-risking illegal personal service is transacted when the expected extra satisfaction rate exceeds the ratio of the expected extra cost to the legal service price. Its prevalence decreases with the costs of risk bearing for the providers and clients. Law-enforcement effort lowers (raises) the equilibrium price of the illegal and hazardous service when the ratio of the providers’ and the clients’ degrees of absolute risk aversion is greater (smaller) than the ratio of the law-enforcement elasticities of their cost bearing.
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Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number
wp07-02.
Find related papers by JEL classification: D4 - Microeconomics - - Market Structure and Pricing D8 - Microeconomics - - Information, Knowledge, and Uncertainty I1 - Health, Education, and Welfare - - Health K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
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