Handout for Econ 522, Spring 2009, Disc #8, 3/26
1. The economic essence of tort law is its use of liability to internalize externalities created by high transaction costs.
Liability is just a transfer, which itself don’t affect efficiency directly. But tort liability can
“induce injurers and victims to internalize the costs of harm that can occur from failing to take care.” “When potential wrongdoers internalize the costs of the harm that they cause, they have incentives to invest in safety at the efficient level.”
2. Three elements must be present for recovery by the plaintiff under the traditional theory of tort: elementsharm , causation , breach of duty
3.1 expected harm: p(x)A
3.2 cost of precaution: wx
3.3 social cost: SC=wx + p(x)A
3.4 unilateral precaution and bilateral precaution
a. no liability b. strict liability c. simple negligence d. negligence + contributory negligence e. strict liability + contributory negligence f. comparative negligence
5. Which of the legal rules will hold injurer liable under each of the following scenario? a. dentist ill-handle a operation and the patient need a surgery to fix the problem b. moving car hits parked car, c. car hit pedestrian, who was J-walking d. car hit pedestrian, who was J-walking and the car was not supposed to make left turn e. medicine causes side effects, the producer has put reasonable warning, but the patient still eat the madicine with milk.