Handout for Econ 522, Spring 2009, Disc #9, 4/2
Tort Law
Question 1:
Suppose the price of taxi (one dental treatment) has been set by the government.
There is some chance of car accident happening with taxi’s. Will strict liability rule or
simple negligence lead to efficient precaution by the taxi driver? How about
passenger’s activity level? If it depends, what does it depend on?
Question 2:
Suppose that eating snakes becomes very popular and the business becomes very
competitive. Even the restaurants take care of the dish very carefully, there is still
some small chance that the customer will have some food poisoning. Will strict
liability rule or simple negligence lead to efficient precaution by the restauant? How
about customers’ activity level? If it depends, what does it depend on?
Concept: due care. Care is due if it is cost justifiable from the society point of view.
Recap of Contract Law:
1. Formation Defense:
a. Incompetence
b.Duress and Necessity:
c. Derogation of public policy:
2. Performance Excuse:
a. Impossibility
b. frustration of perpose
c. mutual mistake
3. Remedies of breach:
a. measure expectation damages,
b. reliance demages
c. opportunity-cost damages
Question 3
A rich man saw a painter painting in front of a old castle. He comes over and say: Hey,
why don’t you just buy a nice digital camera? The painter didn’t looked at him at all.
The rich man comes closer and saw the picture the painter was painting. He was
surprised, there is this beautiful lady in the picture while there is no one in front of the
painter. The rich man immediately offer to buy the finished painting at $200,000.
Actually the painting was ordered by the son of that lady in the picture. His valuation
of giving this painting as a birthday gift to his mother is $250,000 (unknown to the
painter) and he offered a price at $100,000, which is a fair market price of such a
painting at beginning.
a. explain in general why expectation damages set the right incentive for the promisor
to choose efficient breach?
b. Do you think the painter should breach the original contract? Will he? Do you
support his decision?