Daily exercise 2 on insurance and efficiency

A government is considering two policies, A and B, for increasing the resistance of a crop to drought. Policy A is well understood. It would provide $50,000 of net benefits and does not involve any uncertainty or risk. Policy B is new and less well understood. It would provide much larger benefits, $200,000, but it could have bad side effects. There is a 10% chance it would create $1 million in damage (H) and a 30% chance it would create $200,000 in damage (L), and a 60% chance it would create no damage (N). If the government wants to adopt B it would need to buy an insurance policy to cover the possible damages.

1. What would the fair insurance premium be for policy B?
2. What is the net social surplus produced by each policy?
3. Which is best?

Please scan and upload your answer.