1.Mr. Smith can cause an accident, which entails a monetary loss of $1000 to Ms. Adams. Thelikelihood of the accident depends on the precaution decisions by both individuals. Specifically,each individual can choose either "low" or "high" precaution, with the low precaution requiringno cost and the high precaution requiring the effort cost of $200 to the individual who choosesthe high precaution. The following table describes the probability of an accident for eachcombination of the precaution choices by the two individuals.Adams chooses low precaution Adams chooses high precautionSmith chooses low precautionSmith chooses high precaution0.80.50.70.11)What is the socially efficient outcome?For each of the following tort rules, (i) construct a table describing the individuals' payoffs underdifferent precaution pairs and (ii) find the equilibrium precaution choices by the individuals.2)a) No liabilityb) Strict liability (with full compensation)c) Negligence rule (with efficient legal standard of care)d) Negligence with a defense of contributory negligence (with efficient legal standard of care)

If Mr. Smith and Ms. Adams choose a high precaution Expected loss = 0.1*1000 + 200 =$300 If Mr.…

What is the socially efficient outcome? For each of the following tort rules, (i) construct a table describing the individuals' payoffs un different precaution pairs and (ii) find the equilibrium precaution choices by the individuals.

What is the socially efficient outcome? For each of the following tort rules, (i) construct a table describing the individuals' payoffs un different precaution pairs and (ii) find the equilibrium precaution choices by the individuals.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: The Basic Tools Of Finance

Section: Chapter Questions

Problem 5PA

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