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Law and Economics-Charles W. Upton
Levels of Activity
Levels of Activity
Tie Breakers
• Levels of Activity
• Errors in Application
Levels of Activity
Levels of Activity
• Whenever I take a drive there is a chance of an accident.
Levels of Activity
Levels of Activity
• Whenever I take a drive there is a chance of an accident. – A benefit cost calculation of that trip should
consider that.– If we establish a rule than any other driver pays
for injury to me, I do not have to consider that.
Levels of Activity
A Better Model
• A better model might be one in which I allow for the benefits of N trips less the cost of damages.
Levels of Activity
A Better Model
• A better model might be one in which I allow for the benefits of N trips less the cost of damages.
B(N) - N[p(xi,xv)D –wxv]-wxi
Levels of Activity
Implications
• Suppose I am a careful driver. On each trip, I stay within the speed limit and observe reasonable precautions.
• That is I set
xv = xv*.
• Under any defense of negligence, I escape all responsibility for any accidents.
Levels of Activity
Implications
• My private objective function becomes
B(N) - Nwxv*
• The marginal benefits of a trip are
B’(N) - wxv*
Levels of Activity
Implications
• Assuming optimal behavior by myself and the injurer, the social benefit of a trip is
B’(N) -p(xi*,xv*)D -wxv*
Levels of Activity
Implications
• Assuming optimal behavior by myself and the injurer, the social benefit of a trip is
B’(N) -p(xi*,xv*)D -wxv*
• Not
B’(N) - wxv*
Levels of Activity
Implications
• Assuming optimal behavior by myself and the injurer, the social benefit of a trip is
B’(N) -p(xi*,xv*)D -wxv*
• Not
B’(N) - wxv*
I do not consider the full cost of the social trip. I overstate the benefits.
Levels of Activity
A Summary
Levels of Activity
No LiabilityWhat it Means Incentives to Victim Incentives to Injurer
No matter what, the “injurer” has no liability. (No fault insurance)
The potential victim is fully motivated to take economically efficient precautions against being injured. Indeed, the victim may over invest in precautions.
The injurer has no responsibility at all.
Levels of Activity
No LiabilityWhat it Means Incentives to Victim Incentives to Injurer
No matter what, the “injurer” has no liability. (No fault insurance)
The potential victim is fully motivated to take economically efficient precautions against being injured. Indeed, the victim may over invest in precautions.
The injurer has no responsibility at all.
Levels of Activity
Strict LiabilityWhat it Means Incentives to Victim Incentives to Injurer
No matter what happens, the injurer is at fault. (In some cases product liability laws).
The potential victim has no responsibility to take any precautions against being injured.
The potential injurer is fully motivated to take economically efficient precautions against causing an injury. Indeed, the injurer may over invest in precautions.
Levels of Activity
Strict LiabilityWhat it Means Incentives to Victim Incentives to Injurer
No matter what happens, the injurer is at fault. (In some cases product liability laws).
The potential victim has no responsibility to take any precautions against being injured.
The potential injurer is fully motivated to take economically efficient precautions against causing an injury. Indeed, the injurer may over invest in precautions.
Levels of Activity
Simple NegligenceWhat it Means Incentives to Victim Incentives to Injurer
The injurer is required to meet an economically efficient standard of precaution. If that standard is met, then there is no liability. If the standard is not met, then there is liability.
The potential victim has an incentive to take precautions against being injured, but not to reduce the level of activity. That is, drive at the speed limit but don't worry about restricting the number of miles one drives.
The potential injurer has an incentive to meet the standard required to pass the negligence test, but not to go beyond that. For example, drive at the speed limit, but don’t worry about restricting the number of miles one drives.
Levels of Activity
Simple NegligenceWhat it Means Incentives to Victim Incentives to Injurer
The injurer is required to meet an economically efficient standard of precaution. If that standard is met, then there is no liability. If the standard is not met, then there is liability.
The potential victim has an incentive to take precautions against being injured, but not to reduce the level of activity. That is, drive at the speed limit but don't worry about restricting the number of miles one drives.
The potential injurer has an incentive to meet the standard required to pass the negligence test, but not to go beyond that. For example, drive at the speed limit, but don’t worry about restricting the number of miles one drives.
Problem
Levels of Activity
Simple NegligenceWhat it Means Incentives to Victim Incentives to Injurer
The injurer is required to meet an economically efficient standard of precaution. If that standard is met, then there is no liability. If the standard is not met, then there is liability.
The potential victim has an incentive to take precautions against being injured, but not to reduce the level of activity. That is, drive at the speed limit but don't worry about restricting the number of miles one drives.
The potential injurer has an incentive to meet the standard required to pass the negligence test, but not to go beyond that. For example, drive at the speed limit, but don’t worry about restricting the number of miles one drives.
Problem
Levels of Activity
Negligence + Contributory Negligence
What it Means Incentives to Victim Incentives to Injurer Injurer must meet standard of efficient precaution, but even if he doesn’t, is not responsible if victim did not exercise efficient care. For example, you are required to obey the speed limit, but what happens if you are speeding and run into a car illegally parked?
The potential victim has an incentive to take precautions against being injured, but not to reduce the level of activity. That is, don't park illegally, but don't worry about the risks of being hit if you are legally parked.
The potential injurer has an incentive to meet the standard required to pass the negligence test, but not to go beyond that. For example, drive at the speed limit, but don’t worry about restricting the number of miles one drives.
Levels of Activity
Negligence + Contributory Negligence
What it Means Incentives to Victim Incentives to Injurer Injurer must meet standard of efficient precaution, but even if he doesn’t, is not responsible if victim did not exercise efficient care. For example, you are required to obey the speed limit, but what happens if you are speeding and run into a car illegally parked?
The potential victim has an incentive to take precautions against being injured, but not to reduce the level of activity. That is, don't park illegally, but don't worry about the risks of being hit if you are legally parked.
The potential injurer has an incentive to meet the standard required to pass the negligence test, but not to go beyond that. For example, drive at the speed limit, but don’t worry about restricting the number of miles one drives.
Problem
Levels of Activity
Negligence + Contributory Negligence
What it Means Incentives to Victim Incentives to Injurer Injurer must meet standard of efficient precaution, but even if he doesn’t, is not responsible if victim did not exercise efficient care. For example, you are required to obey the speed limit, but what happens if you are speeding and run into a car illegally parked?
The potential victim has an incentive to take precautions against being injured, but not to reduce the level of activity. That is, don't park illegally, but don't worry about the risks of being hit if you are legally parked.
The potential injurer has an incentive to meet the standard required to pass the negligence test, but not to go beyond that. For example, drive at the speed limit, but don’t worry about restricting the number of miles one drives.
Problem
Levels of Activity
Strict Liability + Contributory Negligence
What it Means Incentives to Victim Incentives to Injurer Injurer is liable unless victim does not meet standards of care.
The potential victim has an incentive to take precautions against being injured. Need not take level of activity into account. That is, you will be held harmless as long as you are driving at or below the speed limit.
The potential injurer has an incentive to invest in precautions, perhaps an over- incentive, but must also worry about level of activity.
Levels of Activity
Strict Liability + Contributory Negligence
What it Means Incentives to Victim Incentives to Injurer Injurer is liable unless victim does not meet standards of care.
The potential victim has an incentive to take precautions against being injured. Need not take level of activity into account. That is, you will be held harmless as long as you are driving at or below the speed limit.
The potential injurer has an incentive to invest in precautions, perhaps an over- incentive, but must also worry about level of activity.
Problem
Levels of Activity
Strict Liability + Contributory Negligence
What it Means Incentives to Victim Incentives to Injurer Injurer is liable unless victim does not meet standards of care.
The potential victim has an incentive to take precautions against being injured. Need not take level of activity into account. That is, you will be held harmless as long as you are driving at or below the speed limit.
The potential injurer has an incentive to invest in precautions, perhaps an over- incentive, but must also worry about level of activity.
Levels of Activity
Comparative NegligenceWhat it Means Incentives to Victim Incentives to Injurer
If injurer meets safety standard and victim does not, injurer has no liability. If injurer does not meet safety standard, but victim does, injurer has 100% liability. If neither meets safety standard, then liability is proportional to level of fault.
Has an incentive to invest in precautions and to reduce level of activity. That is, drive below the speed limit and watch the number of trips you take.
Has an incentive to invest in precautions but no incentive to reduce level of activity. As long as you drive below the speed limit, you can take as many trips as you like without considering the impact on other drivers.
Levels of Activity
Comparative NegligenceWhat it Means Incentives to Victim Incentives to Injurer
If injurer meets safety standard and victim does not, injurer has no liability. If injurer does not meet safety standard, but victim does, injurer has 100% liability. If neither meets safety standard, then liability is proportional to level of fault.
Has an incentive to invest in precautions and to reduce level of activity. That is, drive below the speed limit and watch the number of trips you take.
Has an incentive to invest in precautions but no incentive to reduce level of activity. As long as you drive below the speed limit, you can take as many trips as you like without considering the impact on other drivers.
Levels of Activity
Comparative NegligenceWhat it Means Incentives to Victim Incentives to Injurer
If injurer meets safety standard and victim does not, injurer has no liability. If injurer does not meet safety standard, but victim does, injurer has 100% liability. If neither meets safety standard, then liability is proportional to level of fault.
Has an incentive to invest in precautions and to reduce level of activity. That is, drive below the speed limit and watch the number of trips you take.
Has an incentive to invest in precautions but no incentive to reduce level of activity. As long as you drive below the speed limit, you can take as many trips as you like without considering the impact on other drivers.
Problem
Levels of Activity
And the Winner Is…
Levels of Activity
And the Winner Is…
• If you want to give incentives to the injurer to change the level of activity:
Strict Liability Plus Contributory Negligence
Levels of Activity
And the Winner Is…
• If you want to give incentives to the injurer to change the level of activity:
Strict Liability Plus Contributory Negligence
• If you want to give incentives to the victim to change the level of activity:
Comparative Negligence
Levels of Activity
End
©2004 Charles W. Upton
