An accident might occur that will cost the victim $80,000. The probability of the accident is .006(6/1000). Suppose that the victim can reduce this probability by .002 (to .004 if the injurer does nothing) by spending $100, while the injurer can reduce the probability by .003 (to .003 if the victim does nothing) by spending $150. If both parties take actions to prevent an accident, the probability of the accident falls to .001.

(a)

(b) (c)

Comment on the efficiency of the following three (3) liability rules in this case: strict liability, no liability, and comparative negligence. (3 Marks)

Of these rules, which would you recommend? Explain why. (3 Marks)

What circumstances might lead you to favour strict liability as a liability rule in tort cases? (3 Marks)