The first order condition that defines optimal standard of care for tort liability is:

()=

Where A is the harm caused by an accident, () is the probability of an accident and w is the marginal cost of a unit of care. The Hand Rule, widely adopted in US Courts, examines whether ()

a. Which way does the Hand Rule inequality have to go for a Court to find that the defendant was negligent?

b. How do the two standards compare? Is it likely or unlikely that the Hand Rule gives the right answers?

c. Describe a US case that was decided using the Hand Rule (briefly, in no more than a paragraph). Would using the correct rule have led to a different decision? Explain, and if so how would it have differed?

d. Behavioural Economics experiments have shown that people typically overstate the probability of events that they have just observed. A jury in a negligence case will of course have just observed an accident. What does this suggest about the use of the negligence rule by juries? Are there other factors that might operate in the opposite direction?