Assume that there are two parties, I and V. I engages in an activity that tends to injure V. V and I both can take care to reduce the expected harm from accidents. Specifically, suppose that if I takes no care (i.e., spends $0 on accident precautions), expected injury to V is $25. If I spends $5 on accident precautions, however, the expected injury to V is reduced to $18. Further suppose that V has a choice between taking no care or spending $4 in care to avoid accidents. If V spends $4 in care, V’s expected harm falls by $2 regardless of the level of care that I takes. Assume that courts adopt the socially-optimal level of injurer care as the negligence standard. That is, if I takes less than the socially-optimal level of care, she will be found negligent and must pay for all damages to V. If I takes at least the socially optimal level of care, she will not have to compensate V for his damages. What is the Nash equilibrium of this game under a rule of no liability? A. I spends $5 on precautions and V spends $0 on precautions. B. I spends $5 on precautions and V spends $4 on precautions. C. I spends $0 on precautions and V spends $0 on precautions D. I spends $0 on precautions and V spends $4 on precautions
Use the following information for questions 12-14.
Assume that there are two parties, I and V. I engages in an activity that tends to injure V. V and I both can take care to reduce the expected harm from accidents. Specifically, suppose that if I takes no care (i.e., spends $0 on accident precautions), expected injury to V is $25. If I spends $5 on accident precautions, however, the expected injury to V is reduced to $18. Further suppose that V has a choice between taking no care or spending $4 in care to avoid accidents. If V spends $4 in care, V’s expected harm falls by $2 regardless of the level of care that I takes. Assume that courts adopt the socially-optimal level of injurer care as the negligence standard. That is, if I takes less than the socially-optimal level of care, she will be found negligent and must pay for all damages to V. If I takes at least the socially optimal level of care, she will not have to compensate V for his damages.
What is the Nash equilibrium of this game under a rule of no liability?
A. |
I spends $5 on precautions and V spends $0 on precautions.
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|
B. |
I spends $5 on precautions and V spends $4 on precautions.
|
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C. |
I spends $0 on precautions and V spends $0 on precautions
|
|
D. |
I spends $0 on precautions and V spends $4 on precautions
|
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