Assume that there are two parties, I and V. I engages in an activity that tends to injure V. V and both can take care to reduce the expected harm from accidents. Specifically, suppose that if I takes no care (i.e., spends $0 on accident precautions), expected injury to V is $250. If I spends $40 on accident precautions, however, the expected injury to V is reduced to $175. Further suppose that V has a choice between taking no care or spending $50 in care to avoid accidents. If V spends $50 in care, V's expected harm falls by $20 regardless of the level of care that I takes. Assume that courts adopt the socially-optimal level of injurer care as the negligence standard. That is, if I takes less than the socially-optimal level of care, she will be found negligent and must pay for all damages to V. If I takes at least the socially optimal level of care, she will not have to compensate V for his damages. 9. Under a negligence standard, what is l's dominant strategy? a) b) c) d) e) I does not have a dominant strategy. Spend $0 on precautions. Spend $40 on precautions. Spend $40 on precautions only if V takes no precautions. None of the above.

Assume that there are two parties, I and V. I engages in an activity that tends to injure V. V and both can take care to reduce the expected harm from accidents. Specifically, suppose that if I takes no care (i.e., spends $0 on accident precautions), expected injury to V is $250. If I spends $40 on accident precautions, however, the expected injury to V is reduced to $175. Further suppose that V has a choice between taking no care or spending $50 in care to avoid accidents. If V spends $50 in care, V's expected harm falls by $20 regardless of the level of care that I takes. Assume that courts adopt the socially-optimal level of injurer care as the negligence standard. That is, if I takes less than the socially-optimal level of care, she will be found negligent and must pay for all damages to V. If I takes at least the socially optimal level of care, she will not have to compensate V for his damages. 9. Under a negligence standard, what is l's dominant strategy? a) b) c) d) e) I does not have a dominant strategy. Spend $0 on precautions. Spend $40 on precautions. Spend $40 on precautions only if V takes no precautions. None of the above.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.8P

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Assume that there are two parties, I and V. I engages in an activity that tends to injure V. V and I both can take care to reduce the expected harm from accidents. Specifically, suppose that if I takes no care (i.e., spends $0 on accident precautions), expected injury to V is $250. If I spends $40 on accident precautions, however, the expected injury to V is reduced to $175. Further suppose that V has a choice between taking no care or spending $50 in care to avoid accidents. If V spends $50 in care, V’s expected harm falls by $20 regardless of the level of care that I takes. Assume that courts adopt the socially‐optimal level of injurer care as the negligence standard. That is, if I takes less than the socially‐optimal level of care, she will be found negligent and must pay for all damages to V. If I takes at least the socially optimal level of care, she will not have to compensate V for his damages. 1. Under a negligence standard, what is I’s dominant strategy? a) I does not have a…
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Use the following information for questions 12-14. Assume that there are two parties, I and V. I engages in an activity that tends to injure V. V and I both can take care to reduce the expected harm from accidents. Specifically, suppose that if I takes no care (i.e., spends $0 on accident precautions), expected injury to V is $25. If I spends $5 on accident precautions, however, the expected injury to V is reduced to $18. Further suppose that V has a choice between taking no care or spending $4 in care to avoid accidents. If V spends $4 in care, V’s expected harm falls by $2 regardless of the level of care that I takes. Assume that courts adopt the socially-optimal level of injurer care as the negligence standard. That is, if I takes less than the socially-optimal level of care, she will be found negligent and must pay for all damages toV. If I takes at least the socially optimal level of care, she will not have to compensate V for his damages. Under a negligence standard, what are…
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