Tort_In_Class_Exercise

# Tort_In_Class_Exercise - Tort Law In Class Exercise Public...

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Tort Law – In Class Exercise Public Policy and Business – Spring 2007 Mr. A is a potential victim of an accident. Ms. B is a potential injurer in this accident. Dollar damages, should an accident occur, are D = \$1,000,000 The probability that the accident will occur depends upon the level of care taken by Mr. A, denoted by the symbol x, and the level of care taken by Ms. B, represented by the symbol y. Both Mr. A and Ms. B may choose integral levels of care between 0 and 5. At different levels of joint care we have the following probabilities that an accident will occur: p(x,y) = y=0 y=1 y=2 y=3 y=4 y=5 x=0 0.200 0.100 0.060 0.030 0.020 0.015 x=1 0.120 0.060 0.035 0.015 0.011 0.009 x=2 0.080 0.040 0.020 0.011 0.007 0.005 x=3 0.060 0.025 0.015 0.008 0.004 0.002 x=4 0.050 0.018 0.011 0.006 0.002 0.001 x=5 0.045 0.016 0.010 0.005 0.001 0.000 The costs of different levels of care are given by A(x) and B(y). For this problem we assume: A(x) B(y) x=0 0 y=0 0 x=1 500 y=1 500 x=2 1500 y=2 2000 x=3 5000 y=3 6000 x=4 10000 y=4 12000 x=5 16000 y=5 20000 1. Complete the following table, showing the social cost associated with this accident at each care level. L(x,y) = p(x,y)D + A(x) + B(y) y=0 y=1 y=2 y=3 y=4 y=5 x=0 100500 62000 36000 32000 35000 x=1 120500 61000 37500 21500 29500 x=2 81500 23500 26500 x=3 65000 30500 22000 19000 21000 27000 x=4 60000 28500 23000 24000 31000 x=5 61000 32500 28000 27000 29000 2. In this case, assuming zero transactions costs, Mr. A and Ms B will negotiate

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Tort_In_Class_Exercise - Tort Law In Class Exercise Public...

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