FE486A: Law and Economics
Homework 2
Due March 3, 2015
40 points total.
Name:_______________________________________________________________
I worked with ________________________________________________________
1. (5 points) Describe the three elements of tort when a motorist driving on crossing streets
comes to an intersection with a stop light and collide.
2. (4 points) Assume that you park your car in a legal parking space on a corner, and a
driver who comes around the corner too fast rams the bumper of his truck into your car,
damaging your car but not his truck. A rule of no liability gives the driver of the truck the
same incentives to avoid such accidents as the incentives given to you to park your car in
a safe place under a rule of strict liability with perfect compensation. Explain why.
3. (3 points) Suppose that a person who is burned in an accident suffers intense pain for 1
week and then fully recovers. What does “perfect compensation” mean in principle as
applied to the burn? Why do you expect actual compensation to be imperfect?
4. (6 points) Assume that Bob currently has wealth, W, equal to 100 ($100,000) and has 2
hands, H. His current utility is U  2WH  20 H . After some time, his job as a meat
grinder resulted in the loss of his left hand. This injury results in workers compensation,
so his wealth falls to 50 ($50,000). Knowing that his injury is irreparable, what would
result in perfect compensation from his employer?
bob
2
5. (2 points) Justify that the simple liability game is in a Nash Equilibrium when the injurer
and the victim take efficient care.
6. (8 points) A swimming pool owner drains it for repairs but keeps the pool gate unlocked
and posts no signs of hazard. A drunk victim at the pool owner’s summer party tries to
cool off and does not check pool water level before diving in empty pool and breaks neck
(literally a “tort” or “twisted” neck). Perfect Compensatory Damages are $5 million.
Under which liability rule(s) would the pool owner NOT be 100% liable for damages (go
through all cases!)? Explain.
a)
b)
c)
d)
Strict Liability
Simple Negligence
Negligence with Defense of Contributory Negligence
Comparative Negligence
7. (4 points) A landlord or a tenant (renter) can purchase smoke detectors which limit
chance of harm (being tenant’s property being damage by fire). Which liability rule
results in the efficient level of smoke detectors being purchased?
a) No Liability (tenant always liable for damage to own property by fire)
b) Strict Liability (landlord always liable for damage to tenant property by fire)
8. (4 points) Either, or both, a football player or the coach can purchase a helmet
that indicates a possible concussion which reduces chance of harm (potential
brain damage). Which liability rule results in the efficient level of helmets being
purchased? That is, should the coach be liable or the player be liable, both, or
neither.
9. (2 points) A swimming pool owner drains it for repairs but keeps the pool gate
unlocked and posts no signs of hazard. A drunk and hot victim at the pool
owner’s summer party tries to cool off and does not check pool water level before
diving in empty pool and breaks neck (literally a “tort” or “twisted” neck).
Perfect Compensatory Damages are $5 million. Under which liability rule would
the pool owner NOT be 100% liable for damages? Explain.
10. (2 points) According to Simple Negligence, the actual level of injurer Precaution
being below or above the “legal standard” determines the defendant injurer’s full
liability or no liability. If the “legal standard” in err is set higher than the socially
efficient level, then under a Simple Negligence rule the impact results in
_________ (victim/injurer) precaution being _____________ (higher/lower) than
the efficient level.