Please give me the letter answers 39. Suppose B accidentally causes a $100 injur
ID: 1127265 • Letter: P
Question
Please give me the letter answers
39. Suppose B accidentally causes a $100 injury to A. Assume that if B had been negligent, A will prevail in a trial; and if B had taken due care, B will prevail. A, however, does not know whether B has taken due care and B cannot credibly convince A that he has taken due care. Assume further that each party’s litigation costs of going to trial equals $10. If B offers A $10 to settle,
(a) A should accept the settlement if she believes it is equally likely that B has been negligent or taken due care.
(b) A should accept the settlement if she believes there is less than a 1 in 5 chance that B has been negligent.
(c) A should reject the settlement.
(d) Unless B is playing an ultimatum game, A should reject the settlement.
(e) A must be playing an ultimatum game otherwise B would not settle since A does not have a credible threat to sue.
40. Consider two law enforcement schemes, A and B, to control double parking. In A, the fine (F) for double parking equals $20 and the probability of apprehension and conviction (P) equals .5, and in B, F equals $200 and P = .05.
(a) Society is indifferent between the two schemes for controlling double parking for they produce the same amount of fines from double parking.
(b) If offenders are risk neutral, society is indifferent between A and B for they produce the same level of deterrence.
(c) If offenders are risk averse, B causes more double parking violations and produces more revenues from fines than A.
(d) If offenders are risk neutral, the cost of deterring double parking is greater for A than B but the level of deterrence is the same.
(e) Whether A or B is a more efficient method of law enforcement depends on whether potential violators are risk averse or risk preferrers.
41. The economic rationale for the rule in Hadley v. Baxendale is:
(a) the promisor will take additional care to prevent a breach that causes unexpected harm to the promisee.
(b) high damage promisees will take additional care when that is the efficient way to lower their damages in the event of a breach.
(c) it lowers the transaction cost of negotiating special terms for parties who suffer higher than average damages from a breach.
(d) it creates efficient incentives for promisors to obtain information on the likely damages they would cause by breaching.
(e) promisors and promisees will have more efficient incentives to take care to prevent a breach if there is no liability for consequential damages.
42. The statement that best describes the efficiency advantage of specific performance over money damages for contract breach is:
(a) specific performance eliminates the problem of excess reliance because the promisor must perform.
(b) specific performance eliminates ex post bargaining cost in the event of a breach.
(c) specific performance lowers the cost of negotiating contract terms ex ante by reducing the likelihood that the parties will include liquidated damage clause in the contract.
(d) specific performance economizes on the cost of calculating damages particularly for unique goods.
(e) specific performance deters inefficient breaching because it eliminates any advantage the promisor might obtain from finding another party willing to pay a higher price for the good in question
43. The phrase that best describes the economics of adverse possession is:
(a) adverse possession is inefficient because it substitutes a coerced for a voluntary exchange.
(b) adverse possession cannot be justified for chattels as opposed to land because the mobility of goods makes a voluntary exchange possible.
(c) adverse possession is inefficient because owners will take excessive precautions to prevent the loss of their property.
(d) adverse possession is Pareto efficient when the cost to the owner of maintaining his ownership in the land is greater than the benefits he would receive.
(e) adverse possession penalizes absentee ownership and therefore leads to distress sales of land that violate the Pareto concept.
44. Suppose B, an agent of C, causes an accident that harms A. Assume it is inefficient for A to take any care to prevent the accident. Under the economic theory of vicarious liability,
(a) C and B should be strictly and jointly liable.
(b) C and B should be strictly and jointly liable only if C can monitor B’s activity.
(c) C should be strictly liable if B is judgment proof.
(d) Neither B nor C should be liable if this is an unavoidable accident.
(e) C should be strictly liable provided he can monitor B’s activity and B is judgment proof.
45. Suppose the cost to the court system of supplying a default term in a contract is $100 and the cost to the parties of supplying an identical term is $5, then
(a) the party injured by the missing term should not be compensated in order to induce that party to provide information ex ante on his likely injury.
(b) the precedential value of contract terms makes an efficiency calculation based on the above numbers meaningless.
(c) the court should refuse to provide that default term because it causes a $95 social loss.
(d) the court should interpret the missing term in accordance with what the parties would have intended had they included the term in the contract.
(e) no efficiency calculation is possible without additional information on the probability that a contingency involving this term will occur.
Explanation / Answer
First question is answered below.
Correct option: (b) A should accept the settlement if she believes there is less than a 1 in 5 chance that B has been negligent.
Reason: A should accept settlement if she believes that there is less than 20% chance that B is negligent otherwise it can lead to a long battle.