Suppose an accident causes $10,000 worth of harm to the victim. The injurer and the victim...
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Suppose an accident causes $10,000 worth of harm to the victim. The injurer and the victim can both take precautions to avoid the accident. The probability of the accident occurring is denoted by 1 p(x, y) : 1 x + 10 4y + 160 Where x represents undertaken by the injurer, and Y denotes the precautions undertaken by the victim. Each unit of precaution costs $1, i.e., w = 1, r = 1 Note that the partial derivatives of p(x,y) are the level of precaution др (x + 10)2 -1 -4 ax ду (4y + 160)2 a) What are the socially optimal levels of precaution? b) Suppose the court applies the rule of strict liability. What levels of precaution will the injurer and victim take? Is this level socially optimal? c) Suppose that the court applies the rule of contributory negligence It sets the level of precaution for the injurer at the socially optimal level, but sets the threshold level of care for the victim at 140, i.e., y = 140. Will this yield the socially optimal levels of precaution? d) Assume that the court applies the rule of contributory negligence and sets the threshold levels of care for both the injurer and victim at the socially optimal levels, x* and y*, respectively. The court, however, Miscalculates the quantum of damages and awards $2,500, instead of $10,000. Will this yield the optimal levels of precaution? Hint: Solve first for the victim's level of precaution. e) Which scenario- (b), (c) or (d) – yields the highest social cost (i.ea., the least efficient outcome)? Explain the intuition behind your answer. Suppose an accident causes $10,000 worth of harm to the victim. The injurer and the victim can both take precautions to avoid the accident. The probability of the accident occurring is denoted by 1 p(x, y) : 1 x + 10 4y + 160 Where x represents undertaken by the injurer, and Y denotes the precautions undertaken by the victim. Each unit of precaution costs $1, i.e., w = 1, r = 1 Note that the partial derivatives of p(x,y) are the level of precaution др (x + 10)2 -1 -4 ax ду (4y + 160)2 a) What are the socially optimal levels of precaution? b) Suppose the court applies the rule of strict liability. What levels of precaution will the injurer and victim take? Is this level socially optimal? c) Suppose that the court applies the rule of contributory negligence It sets the level of precaution for the injurer at the socially optimal level, but sets the threshold level of care for the victim at 140, i.e., y = 140. Will this yield the socially optimal levels of precaution? d) Assume that the court applies the rule of contributory negligence and sets the threshold levels of care for both the injurer and victim at the socially optimal levels, x* and y*, respectively. The court, however, Miscalculates the quantum of damages and awards $2,500, instead of $10,000. Will this yield the optimal levels of precaution? Hint: Solve first for the victim's level of precaution. e) Which scenario- (b), (c) or (d) – yields the highest social cost (i.ea., the least efficient outcome)? Explain the intuition behind your answer.
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2 25 marks Suppose an accident causes 10000 worth of harm to ... View the full answer
Related Book For
Applied Physics
ISBN: 978-0132109277
10th Edition
Authors: Dale ewen, Neill schurter, P. erik gundersen
Posted Date:
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