2. Consider the economic model of tort liability that we studied in class. Use the following functions for the model. p(x) = 1/√x (that is, one over a square root of x), where x denotes the injurer's precaution level. w=5, where w denotes the unit cost of taking precaution H = 10,000 (harm from the accident) 1. Now consider the simple negligence rule. a) What level of precaution will the injurer choose if the legal standard of care is set at x*. Draw a graph to illustrate your answer. b) Now assume that the injurer believes that the legal standard of care is set at 0.5x*. Find out the injurer's optimal level of precaution under the simple negligence rule. Draw a graph to illustrate your answer.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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2. Consider the economic model of tort liability that we studied in class.
Use the following functions for the model. p(x) = 1/Vx (that is, one over a square root of x),
where x denotes the injurer's precaution level.
w = 5, where w denotes the unit cost of taking precaution
H = 10,000 (harm from the accident)
1. Now consider the simple negligence rule.
a) What level of precaution will the injurer choose if the legal standard of care is set at
x*. Draw a graph to illustrate your answer.
b) Now assume that the injurer believes that the legal standard of care is set at 0.5x*.
Find out the injurer's optimal level of precaution under the simple negligence rule. Draw
a graph to illustrate your answer.
Transcribed Image Text:2. Consider the economic model of tort liability that we studied in class. Use the following functions for the model. p(x) = 1/Vx (that is, one over a square root of x), where x denotes the injurer's precaution level. w = 5, where w denotes the unit cost of taking precaution H = 10,000 (harm from the accident) 1. Now consider the simple negligence rule. a) What level of precaution will the injurer choose if the legal standard of care is set at x*. Draw a graph to illustrate your answer. b) Now assume that the injurer believes that the legal standard of care is set at 0.5x*. Find out the injurer's optimal level of precaution under the simple negligence rule. Draw a graph to illustrate your answer.
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