Reference no: EM131805903
Strict Liability, Negligence, and Drivers
Suppose we believe the following facts about car drivers and bicyclists:
• Driving more carefully reduces the probability of causing an accident, but bicycling more carefully does not change the probability of being hit – other than riding less, there is nothing bicyclists can do to reduce the likelihood of an accident
• On weekdays, most car drivers are just commuting to and from work, so the amount they drive is very inelastic (very unresponsive to incentives)
• Bicyclists, on the other hand, area mixture of commuters and pleasure riders, so the number of bicyclists is more responsive to incentives
Given these facts,
(a) Explain why a strict liability rule would lead to the efficient level of precaution by drivers.
(b) Explain why a strict liability rule would not lead to the efficient number of weekday accidents. Would bicyclist activity be higher or lower than the efficient level?
(c) Explain why a simple negligence rule would lead to both the efficient level of driver precaution and the efficient number of weekday accidents.
Next, consider the harms caused by a different type of driver: pizza deliverymen who hit pedestrians. We will assume that the pizza industry is perfectly competitive, so the price of a pizza reflects the marginal cost of the ingredients, the labor to make it, and the cost of delivering it (including the pizzeria’s expected liability). Also assume that consumers are smart – people understand the risks inherent in ordering and eating pizza.
(d) Explain why both strict liability and negligence rules would lead to efficient precautionby pizza delivery drivers.
(e) Would a simple negligence rule lead to the efficient level of activity, that is, the efficiennumber of pizzas being delivered? Why or why not? If not, would the number of pizzas delivered be inefficiently high or inefficiently low?
(f) Explain why a strict liability rule leads to the efficient level of activity, and therefore the efficient number of pizza delivery-related accidents.