Econ141 Exam2 NO GRAPHS

Econ141 Exam2 NO GRAPHS - 1) Explain how the observable...

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Unformatted text preview: 1) Explain how the observable precaution and the activity level of injurer and victim are affected by each of the following: a) strict liability, b) negligence w/ contributory, and c) strict liability w/ contrib. KEY: Xd (observable precaution of defendent) Xv (observable precaution of victim/plaintiff) Ad (unobservable precaution/activity of def't) Av (unobservable precaution/activity of victim/plaintiff) Xd*/Xv* (legal standard of precaution) XdO/XvO (optimal levels of precaution) A) For strict liability, the plaintiff must demonstrate that the defendant is the proximate cause of harm and that it was foreseeable (it does no good to hold defendant liable for unforeseeable consequences of the defendant's behavior). Provides incentive to exercise observable precaution on the part of the injurer (Xd=Xd*) , but does not provide adequate incentive for the victim because he knows that the injurer is responsible for compensating any potential accident or injury. B) For negligence , the defendant is liable if and only if Xd<Xd*. This provides incentive for injurers to take all cost-justified levels of precaution (Xd=Xd*). With contributory negligence, the victim is barred from compensation if Xv<Xv*, or Xv < XvO when plaintiff is the least cost avoider or the least cost way to avoid requires greater care by plaintiff. C) Strict liability with contributory negligence, aka "modified strict" for defendant to be liable, the victim must have taken at least the established legal standard of care (Xv > Xv*). This provides incentives for efficient precaution by defendant and plaintiff, and efficient activity by the defendant but not the plaintiff. 2) Offer guidelines for the courts in deciding between the following liability rules: a) strict liability, b) negligence w/ contributory defense, and c) strict liability w/ contributory negligence. If we include No Liability, as Friedman does, we can observe a useful symmetry in the rules. No liability and strict liability are inverses of each other: the victim always pays with No Liability, the defendant always pays with Strict Liability. Similarly, Negligence and Strict Liability w/ Contributory Negligence are inverses: one party pays unless the other party is negligent, in which case the negligent party pays. Thus, it follows that strict liability should be used only when the defendant's behavior is relevant, only if we are trying to provide incentives for Xd and Ad. This is the case when the defendant is always the least cost avoider and when no cost-effective precautions can be taken by the plaintiff. If the accident has dual causality (which is often the case) and if the court is not fully informed (which is always the case), we must separate efficient observable precaution from efficient activity and choose between negligence and strict liability with contributory negligence. Negligence should be used with contributory negligence if p(Xd, Xv, Av), meaning if the important precautions the defendant can take are observable and the important precautions the victim can take are unobservable. If the reverse is true, if are observable and the important precautions the victim can take are unobservable....
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Econ141 Exam2 NO GRAPHS - 1) Explain how the observable...

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