Reference no: EM132263064
An accident has occurred, causing $10,000 in harm to the victim. The amount of harm done is undisputed and easy to prove; punitive damages are not applicable, so any damage award would be for exactly $10,000.
This type of accident is governed by strict liability, so the injurer is legally responsible, but it may be difficult to prove in court that he caused the harm. The victim can hire a lawyer for $3,000 and go to trial, in which case he would have a 40% chance of winning. He could also hire an expert witness to testify. This would ensure victory at trial, but would cost an additional $10,000, for a total of $13,000. Going to trial costs the defendant (injurer) $5,000, regardless of whether the plaintiff (victim) hires an expert witness. Assume that neither party pays any legal expenses if an out-of-court settlement is reached.
Consider the usual British rule where the losing party pays both sides’ legal fees (including the cost of the expert witness, if he was hired).
(d) If the case goes to trial, will the plaintiff hire an expert witness?
(e) Given your answer to (d), answer the same three questions as before: calculate
i. each party’s threat point
ii. the gains from cooperation
iii. the settlement that would occur if gains from cooperation were divided evenly
(f) In this scenario, would the British rule lead to over-, under-, or efficient precaution on the part of the injurer?
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