Law and Economics-Charles W. Upton Levels of Activity

Tie Breakers Levels of Activity Errors in Application

Levels of Activity Whenever I take a drive there is a chance of an accident.

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(x i,x v )D –wx v ] -wx i

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 x v = x v *. Under any defense of negligence, I escape all responsibility for any accidents.

Levels of Activity Implications My private objective function becomes B(N) - Nwx v * The marginal benefits of a trip are B’(N) - wx v *

Levels of Activity Implications Assuming optimal behavior by myself and the injurer, the social benefit of a trip is B’(N) -p(x i *,x v *)D -wx v *

Levels of Activity Implications Assuming optimal behavior by myself and the injurer, the social benefit of a trip is B’(N) -p(x i *,x v *)D -wx v * Not B’(N) - wx v *

Levels of Activity Implications Assuming optimal behavior by myself and the injurer, the social benefit of a trip is B’(N) -p(x i *,x v *)D -wx v * Not B’(N) - wx v * I do not consider the full cost of the social trip. I overstate the benefits.

Levels of Activity A Summary

Levels of Activity No Liability

Levels of Activity No Liability

Levels of Activity Strict Liability

Levels of Activity Strict Liability

Levels of Activity Simple Negligence

Levels of Activity Simple Negligence Problem

Levels of Activity Simple Negligence Problem

Levels of Activity Negligence + Contributory Negligence

Levels of Activity Negligence + Contributory Negligence Problem

Levels of Activity Negligence + Contributory Negligence Problem

Levels of Activity Strict Liability + Contributory Negligence

Levels of Activity Strict Liability + Contributory Negligence Problem

Levels of Activity Strict Liability + Contributory Negligence

Levels of Activity Comparative Negligence

Levels of Activity Comparative Negligence

Levels of Activity Comparative Negligence 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