Law and Economics

Question 1

What is Rational Choice Theory?

Answer 1

Best option for themselves will be chosen by actors.

Question 2

What is the goal of tort law?

Answer 2

To internalize negative externalities.

Question 3

What is ex ante and ex post?

Answer 3

Ex ante is forward-looking while ex post is looking back.

Question 4

What is a unilateral accident?

Answer 4

For instance, a plane crash – only one party involved.

Question 5

What is examined in a unilateral accident?

Answer 5

Cost for society.

Question 6

What happens in a unilateral accident scenario where there is no liability?

Answer 6

Costs of accidents is extremely high.

Question 7

What happens in a unilateral accident scenario where there is strict liability?

Answer 7

Level of effective care is 50 percent, expected accident costs is 30 percent, for a total societal cost of 80 percent.

Question 8

What happens in a unilateral accident scenario where there is fault liability?

Answer 8

If fault is set at 70 percent, the expected accident cost is 14 percent – this bring the total societal cost to 84 percent.

Question 9

What happens if the level of fault liability is set too high (90 percent)?

Answer 9

It results in the tortfeasors not complying and paying out victims – 80 percent is the maximum.

Question 10

What happens in a unilateral accident scenario where there is no liability with regard to activity levels?

Answer 10

There is an inefficient activity level – no incentive for tortfeasor to limit activity.

Question 11

What happens in a unilateral accident scenario where there is strict liability with regard to activity levels?

Answer 11

There is an efficient activity level.

Question 12

What happens in a unilateral accident scenario where there is fault liability with regard to activity levels?

Answer 12

No effect on activity levels.

Question 13

What is a bilateral accident?

Answer 13

Victim can influence – need to consider who is taking care, and how much?

Question 14

What is considered when looking at costs for a bilateral accident? What is the total?

Answer 14

Tortfeasor costs, victim costs, and expected damage. Total is societal costs.

Question 15

What happens when both the tortfeasor and the victim take low care?

Answer 15

The expected damage is 100 and the societal cost is therefore 100.

Question 16

What happens when the tortfeasor takes low care but the victim takes high care (20)?

Answer 16

The expected damage is 75 and the societal cost is therefore 95.

Question 17

What happens when the tortfeasor takes high care (20) but the victim takes low care?

Answer 17

The expected damage is 50 and the societal cost is therefore 70.

Question 18

What happens if the tortfeasor takes high care (20) and the victim takes high care (20)?

Answer 18

The expected damage is 25 and the societal cost is therefore 65.

Question 19

When there is no liability, who takes care?

Answer 19

Only the victim.

Question 20

When there is strict liability, who takes care?

Answer 20

Only the tortfeasor.

Question 21

When there is fault liability, who takes care?

Answer 21

Both the tortfeasor and the victim.

Question 22

What are some efficient solutions for bilateral accidents?

Answer 22

1. Strict liability with contributory negligence.

2. Fault liability with an efficient care level.

Question 23

What solutions are efficient with regard to bilateral accident activity level?

Answer 23

Both inefficient – with strict liability, the tortfeasor has to adjust, and with fault liability, the victim has to adjust.

Question 24

When an activity is hazardous, what does it suggest?

Answer 24

Strict liability.

Question 25

What are some considerations in determining which liability scheme should be used?

Answer 25

• Hazardous activities.
• Who has better information?
• Who can better spread losses?
• Can all care dimensions be met with fault?
• System costs – strict liability is cheaper.