a. What is the socially optimal level of precaution? b. What is the socially optimal probability of
Question:
a. What is the socially optimal level of precaution?
b. What is the socially optimal probability of an accident?
c. What level of precaution does the injurer choose under no liability?
d. What level of precaution does the injurer choose under strict liability?
e. What level of precaution does the injurer choose under a properly designed negligence rule?
f. Given your answers above, which liability rule or rules are efficient?
Assume now that litigation is costly. Litigation costs amount to $50,000 for the injurer and $50,000 for the victim.
g. Given these litigation costs, what is the socially optimal level of precaution?
h. Suppose each party bears her own litigation costs at trial. This means the injurer pays only her own (and not the victim’s) litigation costs. What level of precaution does the injurer choose under strict liability?
i. Suppose instead that the injurer bears both parties’ litigation costs. What level of precaution does the injurer choose under strict liability?
Statistics for Business and Economics
ISBN: 978-0321826237
12th edition
Authors: James T. McClave, P. George Benson, Terry T Sincich