EXAM - ECON 408 - Torts - Mia .docx

EXAM - ECON 408 - Torts - Mia .docx - NAME Mia Ha Student...

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NAME: Mia Ha Student #: 1840544 ECON 408 – Spring 2019 - Tort Law 50 points total Take-home Exam – Submit answers on Canvas by 12:00PM (Noon) on Tuesday, May 28 th . Email with any questions: [email protected] 1. (4 points) Give two examples of transaction costs. How would you characterize torts with respect to transaction costs? Explain your answer. Transaction costs could be defined as all the costs relating to the obstacles of bargaining. They include costs of negotiation (logistical difficulties, time consuming, socially/emotionally difficulties), bargaining costs, emotions, cognitive imperfection, private information, and strategy. The first example of transaction cost would be logistical difficulty cost of someone whose car was damaged by an negligent driver. Because his car was not functioning because of the accident, he could not use his car to commute to work and it costed him more time to commute to work and transportation difficulties. The second example of transaction cost would be the cognitive imperfection cost of someone who got poisoned from drinking fake wine at a bar. The fake wine she drank had serious health effects on her and eventually affected her eyesight. With respect to transaction costs, torts exist to compensate tort victims and use transaction costs to determine victims’ losses for compensation purposes and solving tort cases. For example, in the first example of transaction cost, the transaction costs are not just the cost of the damaged car. Other things like victim’s time, logistical difficulties, personal/medical damages are also taken into consideration as transaction costs as well. Under tort law, such transaction costs are used to help put victims back to the original state in which the incident/accident never happened to them. 2. (4 points total) In class, we discussed that tort law can provide incentives for the “injurer” to internalize an otherwise external cost. a) What is this “external cost” that we’re referring to (2 points) and b) How can tort law cause the “injurer” to internalize this cost? (2 points) Tort law provides incentives for the “injurer” to internalize an otherwise external cost. A/ This “external cost” (or externalities) is the cost outside private agreement. This make tort law different from contract law. Tort law concerns relationships among people for whom transaction costs of private agreements are relatively high. B/ Tort law can cause the “injurer” to internalize the external cost by making the injurer compensate the victim. Because when potential wrongdoers (or injurer) internalize the costs of harm that the cause, they have the incentives to invest in safety at the efficient level. Page 1 of 9
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NAME: Mia Ha Student #: 1840544 3. (5 points total) What is “perfect compensation”? (2 points) Perfect compensation is the sufficient compensation to make the victim of an injury equally well off with the money and the injury as he or she would have been without the money or the injury.
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