I. People using power lawnmowers are sometimes injured by them. What determines whether a rule of caveat emptor (the consumer bears the cost of the injury) is better or worse than a rule of caveat venditor (the seller is liable for damages)? Explain.
II. Coke bottles sometimes explode. Briefly explain the arguments for a legal rule of caveat emptor (Coca Cola is not liable for the resulting damage) and for caveat venditor (Coca Cola is liable). What questions would you want to ask in order to decide which rule was better?
III. Do either A or B. (10 points)
A. What is the normal rule for determining the damage payment awarded in a civil suit? What are some of the reasons why this rule might not lead to an efficient outcome? Can you think of any good arguments in favor of this rule. Can you suggest an alternative rule that might be better?
B. In some suits, instead of following the normal rule for damages, the court awards the plaintiff punitive damages.
1. In what sorts of cases are punitive damages awarded?
2. Give two possible explanations of why punitive damages are sometimes awarded, and briefly discuss arguments for and against each.
IV. What does "negligence" mean in tort law, as interpreted by economists?
V: People playing baseball sometimes break windows; we might make them liable under either a strict liability or a negligence rule. Briefly discuss the advantages and disadvantages of each--in particular, who will or will not have an incentive to act efficiently in what ways. Courts know whether the game was being played in a baseball field, a park, or an alley but do not have a videotape of the game. Ignore problems associated with the fact that baseball players are often minors.
Consider the rule that "coming to the nuisance" is a defense, applied to houses some of which were built next to existing baseball fields. In what ways does it lead to a more or less efficient outcome? Explain.
VI: What does it mean, for the purposes of economic analysis of law, to say that one act "caused" another? You may want to consider the applicability of your answer to the problems of coincidental causation (falling safe) and redundant causation (two hunters) discussed in class. In particular.
VII: Why should there be no liability for coincidental causation (you stop to talk to a friend, he continues, a safe falls on him).
VIII: What should the liability be if two hunters simultaneously (and accidentally) shoot and kill a third, and why.
IX: Why might strict liability be the right rule for ultra-hazardous activities, such as blasting or keeping dangerous wild animals as pets.
X. Pick one of the two following situations and explain whether the person who "caused" the accident should be liable and why.
A. Coincidental causation: A bus was hit by a falling tree and some of the passengers were injured; they sue the bus company, claiming that if the bus had not been ahead of its schedule due to driving over the speed limit, it would not have been under the tree when the tree fell.
B. Redundant causation: A hiker is found dead with two bullets in him, one through his heart and one through his brain. It turns out that the shots were fired simultaneously by two hunters, both of whom thought he was a deer. His widow sues for wrongful death.
XI. Automobiles sometimes run over pedestrians, injuring the pedestrian but not the automobile. Three possible legal rules for dealing with such accidents are:
1. The driver is liable to the pedestrian if and only if the driver was negligent.
2. The driver is liable to the pedestrian if and only if the pedestrian was not negligent.
3. The driver, negligent or not, must pay a fine to the state equal to the damage done to the pedestrian; the pedestrian receives nothing.
A. Explain what "negligent" means in 1 and 2.
B. Assume courts can cheaply and accurately observe accidents, judge negligence, and measure damages. Which of the three rules leads to an efficient level of precautions by both drivers and pedestrians? In each case, briefly explain your answer.
C. Suppose we drop the assumptions in B. Briefly describe the inefficiencies that each rule can produce.
XII. Consider an anonymous tort: automobile accidents. (25 points)
A. Under a rule of no liability, every time I drive I accept my share of the cost of automobile accidents. Does this lead to an efficient level of driving and precaution? Discuss.
B. Suppose the legal rule is that whichever driver was going faster when an accident occurred is liable to the other for any damage done. Does this lead to efficient behavior? What if it is "whichever was more at fault?" Discuss.
C. Consider a one-sided accident. Cars do significant damage to pedestrians, pedestrians do negligable damage to cars. The legal rule is strict liability: If there is an accident, the driver must pay for any damage to the pedestrian. Is the result efficient? Discuss.
D. Suppose we have a negligence rule: if the driver was negligent (was not taking all cost justified precautions) he is liable to the pedestrian for the damages. Discuss.
E. Suggest an alternative rule that solves some of the problems you have mentioned with these rules. What problems does it raise?
1. The tank is strictly liable
2. The tank is liable only if it was negligent
3. The tank is liable unless the automobile was negligent ("contributory negligence")
Assume the court can correctly judge negligence with regard to precautions (how fast was he driving, was he drunk, ...) but not with regard to activity level (should he have taken that trip).
A. What does "negligent" mean here, from the standpoint of an economist?
B. Under each rule, which parties will or will not take the efficient level of care? Which will or will not have the efficient activity level? Briefly explain your answers.
XIV. The Coase Theorem tells us that, however rights are defined, the outcome will be efficient. Each of the legal rules described in questions XI-XIV above defines the rights of the parties--so why is not the answer that every rule leads to efficient precautions and an efficient activity level?