Consider a world where actions of one individual, the injurer, can cause harm to another individual, the victim. Courts can assign liability to the injurer or the victim according to a liability rule as seen in class. If and only if liability is assigned to the injurer by the courts, the injurer must make a transfer to the victim that fully compensate the victim for the harm caused. a) The liability standard is strict liability. p(x) is the probability of an accident occurring, h is the harm caused to the victim by the accident, and is the level of precaution. C is the cost of precaution. Only the injurer can exert precaution. What is the optimal level of precaution for the injurer? Is it the socially optimal level of precaution? b) The liability standard is strict liability. Courts will sometimes be wrong and not assign the liability to an injurer that would have been liable under a perfect legal system. The probability of an injurer being found liable in court is 0₁, p(x) is the probability of an accident occurring, h is the harm caused by the accident, and C is the cost of precaution. Set up and solve the injurer's problem and compare this outcome with the full information case where 0₁ = 1 (that is the case from part a)). c) = Take the setup from above, and now suppose the defendant can bribe a judge for $b to increase the probability that the judge will rule in their favour so that 0₁ 0₁(b). Set up and solve the defendant's problem. What inefficiencies are created by the presence of bribery?
Consider a world where actions of one individual, the injurer, can cause harm to another individual, the victim. Courts can assign liability to the injurer or the victim according to a liability rule as seen in class. If and only if liability is assigned to the injurer by the courts, the injurer must make a transfer to the victim that fully compensate the victim for the harm caused. a) The liability standard is strict liability. p(x) is the probability of an accident occurring, h is the harm caused to the victim by the accident, and is the level of precaution. C is the cost of precaution. Only the injurer can exert precaution. What is the optimal level of precaution for the injurer? Is it the socially optimal level of precaution? b) The liability standard is strict liability. Courts will sometimes be wrong and not assign the liability to an injurer that would have been liable under a perfect legal system. The probability of an injurer being found liable in court is 0₁, p(x) is the probability of an accident occurring, h is the harm caused by the accident, and C is the cost of precaution. Set up and solve the injurer's problem and compare this outcome with the full information case where 0₁ = 1 (that is the case from part a)). c) = Take the setup from above, and now suppose the defendant can bribe a judge for $b to increase the probability that the judge will rule in their favour so that 0₁ 0₁(b). Set up and solve the defendant's problem. What inefficiencies are created by the presence of bribery?
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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Transcribed Image Text:Consider a world where actions of one individual, the injurer, can cause harm to another individual,
the victim. Courts can assign liability to the injurer or the victim according to a liability rule as
seen in class. If and only if liability is assigned to the injurer by the courts, the injurer must make
a transfer to the victim that fully compensate the victim for the harm caused.
a)
The liability standard is strict liability. p(x) is the probability of an accident occurring, h is the
harm caused to the victim by the accident, and x is the level of precaution. C, is the cost of
precaution. Only the injurer can exert precaution. What is the optimal level of precaution for the
injurer? Is it the socially optimal level of precaution?
b)
The liability standard is strict liability. Courts will sometimes be wrong and not assign the liability
to an injurer that would have been liable under a perfect legal system. The probability of an
injurer being found liable in court is 01, p(x) is the probability of an accident occurring, h is the
harm caused by the accident, and C is the cost of precaution. Set up and solve the injurer's
problem and compare this outcome with the full information case where 01
from part a)).
1 (that is the case
%3D
c)
Take the setup from above, and now suppose the defendant can bribe a judge for $b to increase
the probability that the judge will rule in their favour so that 01 = 01(b). Set up and solve the
defendant's problem. What inefficiencies are created by the presence of bribery?
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