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Following question 11, what is the Nash equilibrium of this game under a rule of no liability? a) I spends $40 on precautions and V spends $0 on precautions. b) I spends $40 on precautions and V spends $50 on precautions. c) I spends $0 on precautions and V spends $0 on precautions. d) I spends $0 on precautions and V spends $50 on precautions. e) None of the above.

Following question 11, what is the Nash equilibrium of this game under a rule of no liability? a) I spends $40 on precautions and V spends $0 on precautions. b) I spends $40 on precautions and V spends $50 on precautions. c) I spends $0 on precautions and V spends $0 on precautions. d) I spends $0 on precautions and V spends $50 on precautions. e) None of the above.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please answer only question 12. Thank you!

11. Following questions 9 and 10, under a negligence standard, what are the total accident and avoidance costs? b) d) $280. $215. a) $250. c) $245. e) None of the above. Following question 11, what is the Nash equilibrium of this game under a rule of no liability? a) b) c) d) e) 12. I spends $40 on precautions and V spends $0 on precautions. I spends $40 on precautions and V spends $50 on precautions. I spends $0 on precautions and V spends $0 on precautions. I spends $0 on precautions and V spends $50 on precautions. None of the above.
Transcribed Image Text:11. Following questions 9 and 10, under a negligence standard, what are the total accident and avoidance costs? b) d) $280. $215. a) $250. c) $245. e) None of the above. Following question 11, what is the Nash equilibrium of this game under a rule of no liability? a) b) c) d) e) 12. I spends $40 on precautions and V spends $0 on precautions. I spends $40 on precautions and V spends $50 on precautions. I spends $0 on precautions and V spends $0 on precautions. I spends $0 on precautions and V spends $50 on precautions. None of the above.
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 $250. If I spends $40 on accident precautions, however, the expected injury to V is reduced to $175. Further suppose that V has a choice between taking no care or spending $50 in care to avoid accidents. If V spends $50 in care, V's expected harm falls by $20 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. 9. Under a negligence standard, what is l's dominant strategy? a) b) c) d) e) I does not have a dominant strategy. Spend $0 on precautions. Spend $40 on precautions. Spend $40 on precautions only if V takes no precautions. None of the above. Following question 9, under a negligence standard, what is V's dominant strategy? a) c) d) e) 10. V does not have a dominant strategy. b) Spend $0 on precautions. Spend $50 on precautions. Spend $50 on precautions only if I takes no precautions. None of the above.
Transcribed Image Text: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 $250. If I spends $40 on accident precautions, however, the expected injury to V is reduced to $175. Further suppose that V has a choice between taking no care or spending $50 in care to avoid accidents. If V spends $50 in care, V's expected harm falls by $20 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. 9. Under a negligence standard, what is l's dominant strategy? a) b) c) d) e) I does not have a dominant strategy. Spend $0 on precautions. Spend $40 on precautions. Spend $40 on precautions only if V takes no precautions. None of the above. Following question 9, under a negligence standard, what is V's dominant strategy? a) c) d) e) 10. V does not have a dominant strategy. b) Spend $0 on precautions. Spend $50 on precautions. Spend $50 on precautions only if I takes no precautions. None of the above.
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What is the example Coase uses in his examples of liability and no liability for damages? 

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