ECO320Y5 Study Guide - Midterm Guide: Comparative Negligence, No Liability, Marginal Cost
Document Summary
An accident might occur that will cost the victim ,000. Suppose that the victim can reduce this probability by . 002 (to . 004 if the injurer does nothing) by spending , while the injurer can reduce the probability by . 003 (to if the victim does nothing) by spending . 03 take actions to prevent an accident, the probability of the accident falls to. 001. (a)comment on the efficiency of the following three (3) liability rules in this case: strict liability, no liability, and comparative negligence. In this case, it is efficient if both injurers and victims take precautions since for each the marginal cost of taking precautions is lower than the marginal benefit of reducing the expected costs due to accidents (i. e. , 0. 002*80,000 = Strict liability: only injurer will take precautions (inefficient) No liability: only victim will take precautions (inefficient) Strict liability is preferable where it is optimal for only the injurer"s to take some precaution to prevent accidents.
