1. Let's go back to the game played between Charlotte (automobile driver) and Erica (bicyclist). Assume that they are traveling at night. Charlotte could reduce the change of hitting Erica by installing brighter lights. Erica can reduce the change of being hit by wearing a vest. Suppose the cost of brighter lights is $30, and the cost of a vest is $15. The damage done to Erica if there is an accident is $1,000. The table below shows the probabilities of an accident, which depend on the level of care taken by each: No Vest Normal Lights Bright Lights a. What is the efficient level of precaution taken by both sides? Charlotte 8% 3% Erica Vest 5% 1% b. For each of the following rules, determine what level of precaution Charlotte and Erica will take. i. negligence w/ a defense of contributory negligence ii. strict liability with contributory negligence iii. comparative negligence For each rule you will have to complete the payoff tables (I will provide templates on the exam), and then find the equilibrium in each game. c. Who bears the residual risk for each rule? What does that say about Erica's and Charlottes activity levels?
1. Let's go back to the game played between Charlotte (automobile driver) and Erica (bicyclist). Assume that they are traveling at night. Charlotte could reduce the change of hitting Erica by installing brighter lights. Erica can reduce the change of being hit by wearing a vest. Suppose the cost of brighter lights is $30, and the cost of a vest is $15. The damage done to Erica if there is an accident is $1,000. The table below shows the probabilities of an accident, which depend on the level of care taken by each: No Vest Normal Lights Bright Lights a. What is the efficient level of precaution taken by both sides? Charlotte 8% 3% Erica Vest 5% 1% b. For each of the following rules, determine what level of precaution Charlotte and Erica will take. i. negligence w/ a defense of contributory negligence ii. strict liability with contributory negligence iii. comparative negligence For each rule you will have to complete the payoff tables (I will provide templates on the exam), and then find the equilibrium in each game. c. Who bears the residual risk for each rule? What does that say about Erica's and Charlottes activity levels?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter18: Public Economy
Section: Chapter Questions
Problem 6SCQ: Anastasia, Emma, and Greta are deciding what to do on a weekend getaway. They each suggest a first,...
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