Consider our model of torts and a simple negligence rule. Suppose for simplicity only the injurer...

 

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Consider our model of torts and a simple negligence rule. Suppose for simplicity only the injurer can take precaution. Precaution costs w = 2 per "unit" z so that the total cost of precaution is given by wi 2x The probability of an accident is given by P(z) = 1/2. The cost of an accident if it occurs is $800. I will do this problem as a table, but you are welcome to solve it using simple calculus if you want and find that easier (but that is certainly not required). Your answers to questions (a), (b), (c), and (e), if you use tables, should involve filling in the following table, where the last column is either social cost (in part a) or private cost (in the other parts). T Cost of precaution Exp. cost of accidents Cost 10 18 19 20 22 - (a) First consider the total social cost. What is the efficient level of precaution z*? (b) Now suppose that the standard of care z" is set at the efficient level. Give the private cost faced by the injurer at the levels of z above. How much precaution does the injurer take? Is this efficient? (c) Now suppose that damages are calculated incorrectly, so that the damages in the event of an accident are 1.1 times the actual amount. How much precaution does the injurer take? Is this efficient? (d) Would your answer to (c) be different if the rule was strict liability? No calcula- tions necessary but a precise answer is required. (e) Now suppose that the standard of due care is set at level. How much precaution does the injurer take? answer different to your answer to (c)? Why or why not? 19 instead of the efficient Is this efficient? Is your (f) Suppose that with probability 1/2 the standard of due care z" is set at 1 less than the efficient level and with probability 1/2 at 1 more than the efficient level. Without doing any calculations (unless you want to), give a precise explanation of how much precaution the injurer will take, and why. Consider our model of torts and a simple negligence rule. Suppose for simplicity only the injurer can take precaution. Precaution costs w = 2 per "unit" z so that the total cost of precaution is given by wi 2x The probability of an accident is given by P(z) = 1/2. The cost of an accident if it occurs is $800. I will do this problem as a table, but you are welcome to solve it using simple calculus if you want and find that easier (but that is certainly not required). Your answers to questions (a), (b), (c), and (e), if you use tables, should involve filling in the following table, where the last column is either social cost (in part a) or private cost (in the other parts). T Cost of precaution Exp. cost of accidents Cost 10 18 19 20 22 - (a) First consider the total social cost. What is the efficient level of precaution z*? (b) Now suppose that the standard of care z" is set at the efficient level. Give the private cost faced by the injurer at the levels of z above. How much precaution does the injurer take? Is this efficient? (c) Now suppose that damages are calculated incorrectly, so that the damages in the event of an accident are 1.1 times the actual amount. How much precaution does the injurer take? Is this efficient? (d) Would your answer to (c) be different if the rule was strict liability? No calcula- tions necessary but a precise answer is required. (e) Now suppose that the standard of due care is set at level. How much precaution does the injurer take? answer different to your answer to (c)? Why or why not? 19 instead of the efficient Is this efficient? Is your (f) Suppose that with probability 1/2 the standard of due care z" is set at 1 less than the efficient level and with probability 1/2 at 1 more than the efficient level. Without doing any calculations (unless you want to), give a precise explanation of how much precaution the injurer will take, and why.

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a The efficient level of precaution is 20 This is because the total co... View the full answer