Review the following chart. BTW the problem is talking about an amusement park, just so you know what I mean when I say "park" or "rides".
|
Safety checks per month |
REVENUE per month |
COST OF SAFETY |
PROB. Of Accident |
/EXPECTED/ Accident loss |
|
0 |
270,000 |
0 |
0.4 |
200,000 |
|
1 |
250,000 |
30,000 |
0.25 |
125,000 |
|
3 |
220,000 |
45,000 |
0.15 |
75,000 |
|
5 |
150,000 |
55,000 |
0.1 |
50,000 |
|
7 |
120,000 |
70,000 |
0.02 |
10,000 |
|
10 |
100,000 |
75,000 |
0.01 |
5,000 |
|
15 |
80,000 |
80,000 |
0.001 |
500 |
The probability column wasn't needed then (I asked the professor) but it may be in one of these:
1. Under a rule of strict liability, how many inspections are likely to result? Under what circumstances will this be the efficient outcome?
Now, assume we pass a law that caps damages on lawsuits so that no park has to pay out more than $100,000 to consumers injured on their rides. The judge continues to use the expected accidents loesses given in the chart to set the reasonable level of care.
2. How many safety checks would result under a negligence rule with this cap on damages? (show why)
3. How many safety checks would result under a rule of strict liability with this cap on damages? (show why)
Now assume that in addition to the cap on damages, firms believe that 75% of those who are injured will use the legal system to recover damages.
4. How many inspections would the firm choose to undertake under a rule of negligence? (show why)
5. How many inspections would the firm choose to undertake under a rule of strict liability? (show why)