FE486A: Law and Economics
Homework 4
Due April 27th
Problem 1: (2 points)
Define/discuss the differences between the tragedy of the commons and the tragedy of the
anticommons.
Commons property rights not strict enough, overuse
Anticommons property rights too strict, inefficient use (holdout)
Problem 2: (4 points)
Compare and contrast the traditional moral theory of criminal law and the utilitarian theory of
criminal law
Traditional moral theory focuses on retribution, punish because it is right to punish.
Utilitarian punish based on social welfare function
Problem 3: (3 points)
What are three main differences (there are at least 5) between traditional civil law and criminal
law?
Criminal Law
1)
2)
3)
4)
Harm was Intentional, not accidental.
The public is harmed (even if it is just fear)
Plantiff is the state, not the individual
Higher standard  beyond a reasonable doubt (prefer to have type 1 error where
the guilty are not convicted than type 2 where innocent are convicted)
5) Guilty are punished even if there was no actual harm (civil torts need actual harm)
Problem 4: (6 points) Read the following police blotter and determine who is liable (victim
Matthew Gabriel or injurer, Kalya Wiseman) under each liability rule and provide an explanation
(one point liable party and one point for correct explanation).
http://www.baltimorecountymd.gov/News/PoliceNews/iWatch/keyword/matthew%20gabriel
Goucher Student Killed in Hit-and-Run
Apr 14, 2014 5:23:00 PM EDT
A Goucher College student has died of injuries sustained yesterday when he was struck by a
vehicle as he was crossing Dulaney Valley Road.
Mathew Gabriel, 19, of Austin, Texas, was crossing Dulaney Valley Road at Southerly Road at
1:44 a.m. when he was struck by a 2013 Mazda 3 traveling northbound in the right turn lane of
Dulaney Valley Road. Gabriel was crossing west to east and was not in a crosswalk when he was
struck.
The operator of the Mazda, Kayla Wiseman, 23, of the unit block of Transverse Avenue, 21220,
did not remain at the scene and was later located and charged on citations with hit-and-run and
driving under the influence.
The victim was transported to the R. Adams Cowley Shock Trauma Unit, where he died this
morning.
a) Strict Liability Kayla Wiseman, always liable
b) Simple Negligence Kayla Wiseman, both took less than standard level of precaution
c) Comparative Negligence Split liability based on percentage responsbile
Problem 5: (8 points) Rent-a-car is a car rental agency. You and a friend have decided to enter
into a contract in which you will rent a car from Monday until Friday. You agree to rent a 2007
Subaru Imprezza for 5 days for $500. Your willingness to pay for this car for the week is $800.
You also purchased a new GPS for your trip from Hall-Mart for $200. Rent-a-car’s cost of
cleaning, fueling, and preparing the car for you is $80; $30 of which is spent Monday morning to
deliver the car to your residence.
Assume that you pay for the car when you enter into the contract. Just before the delivery on
Monday, Rent-a-car receives a call from another customer offering $750 for the same car that
week. If the contract is breached, you must call another car rental agency and the best price you
can find that Monday is $775.
a) Show a game tree illustrating the contract/no contract and breach/no breach – including
payoffs. (4 points)
Perform
Profit you: 800 – 200 – 500 = 100
Profit RC: 500 – 80 = 420
Total surplus perform = 520
Breach with remedy
Profit you: 800 – 500 – 775 – 200 + D = - 675 + D
Profit RC: 500 + 750 – 80 – D = 1170 – D
Total surplus breach: 495
b) Is breach efficient? Explain.
No total surplus higher with perform
c) With restitution damages, what are the damages, and will the efficient outcome be
reached?
D = 500
670 > 420 so breach (inefficient)
d) With reliance damages, what are the damages, and will the efficient outcome be
reached?
D = 700
470 > 420 so breach (inefficient)
e) With expectation damages, what are the damages, and will the efficient outcome
be reached?
D = 775
700 < 420 so preform (efficient)
Problem 6: (7 points)
When I was in graduate school, my apartment was in the basement and my upstairs neighbor’s
wood patio deck was directly above my door. Clearly the patio deck area is my neighbor’s
property and the area in front of my door is my property. However, as the patio deck was wood,
there were areas in which ‘materials’ from their deck would fall onto me. Specifically, they used
their patio deck as an area to potty train their dog.
Assume that if the dog relieves himself when I am under my door, it costs me $100 in time spent
rewashing my hair and rewashing my clothes due to the dog waste. Also assume that it costs my
neighbors $70 to train someone to take their dog on daily walks (in which he would relieve himself
on the walk, rather than my head). Finally assume it would cost me $125 in tarp and/staple guns to
attach a tarp to the bottom of the deck and keep the waste on their deck. Assume that the
transaction costs between me and my neighbor are zero.
Compare the efficiency of these three legal regimes: Be sure to indicate, 1) the complete outcome
(what I do and what my neighbor does) 2) if the outcome is efficient, and 3) if there is any side
payment and how much it would be.
a) (2 points) Illustrate with an appropriate game matrix.
Neighbor
Me
Train
Not train
Tarp
-125, -70
-125, 0
No tarp
0, -70
-100, 0
b) (2 points) my rights: I have a legally-enforceable right to be free from dog waste; in the
event of waste hitting my head, I am entitled to be compensated for the money I have to
spend rewashing my clothes and shampoo costs.
(train, no tarp) no side payments
c) (2 points) neighbor’s rights: the neighbor bears no liability for any pet leakagespillover.
(train, no tarp) side payment, I pay $70 to have their dog trained
d) (1 point) Explain why if I have super-rights it doesn’t change the outcome (in Economic
English).
No because they would train their dog.