ECONOMICS 378 LAW AND ECONOMICS | UNIVERSITY OF ALBERTA

QUESTION 1

a) Property rights encourage the efficient use and development of resources, Property rights facilitate trade and foster growth, Property rights help to internalize externalities

b) The plaintiff is more likely to win the trial than the defendant, The plaintiff believes she can win the trial with probability greater than 1/2, ) The plaintiff assesses her likelihood of winning more optimistically than the defendant assesses the same likelihood

c) The Canadian Dollar, The Coca-Cola formula, Microsoft shares

d) Contingent fees finance litigation for wealth constrained plaintiffs, Contingent fees can lead to lower litigation costs, by encouraging more settlement, Contingent fees facilitate more efficient risk-sharing between lawyers and clients

QUESTION 2

a) socially optimal number of boats

V= 100+95+90+80+60+40+20

= 485/7

= 69.28

= 70

Operating cost= 25

= 70-n= 25

n= 45

The socially optimal number of the boat in a lake = 45

b) the number of boats

=100-n= 25

= n= 75

c) privately owned boats

= Socially optimum number of boats- common boats= private boats

= 70-45

= 25

QUESTION 3

a)

Social efficiency is a term that shows that the margin asocial benefit and re margin social cost are equal.

In the given case, the damage incurred by Wanda incurred the cost of repair and fencing costs together as the social costs.

Social benefit= Social cost

$500=$200+$300

b)

Membership- Jim pays the membership of the club to use the golf course due to which he carried his dog with him.

Asset purchase- Along with the club’s membership, he also pays golf course fees additionally with the club charges.

Joint venture- Jim also has a joint venture with the golf course that is the reason his dog escapes from his home to this course and he pays the repairing cost.

Management service agreement- It is the last transaction structure that Jim manages the entire golf course.

c)

In the absence of transaction costs, the four transactions structure as consider in determining the outcome.

Membership- According to this structure, Jim pays the membership fees to access the golf course

Asset purchase- The equipment of the golf course paid by the Jim altogether

Joint venture- The cost of damages to the golf course will be borne by Jim and its other partner equally.

Management service agreement- Jim pays the cost of damages and other things such as fencing as they administer the golf course.

QUESTION 4

a)

When social benefit d the social cost is equal then its is considered as a socially efficient

$500 in period 1 without training

$2000 with training in period 1

Without training in period 2 is $500

Cost of training in period 1= $600

Social bennefit= $500+$500+$2000

= $3000

Social cost= $600

No, it is not socially efficient to train the workers as the social costa and the social benefit is not equal.

b)

Benefit in period 1 without  training= $500

Cost of training in period 1= $600

The wage in period 1= $500/$600*100

= benefit/cost*100

= $500/$600*100

= $83.33

= $84

Generates value for B and is untrained is $500

The worker is trained and generates $1500

Benefit in period 2 = $2000

Cost of training in period 2=  $0

The wage in period 2= benefit/100

= $1400/100

= $140

c)

Benefit in period 1 without  training= $500

Cost of training in period 1= $0

The wage in period 1= $500/0*100

= benefit/100

= $500/100

= $50

d)

A worker in firm A will get a $ 234 wage for period 1 and the firm will get a benefit of $1400 by giving training to workers. While a worker without training generates $500 to firm A and will get $50 as wages in period 1.

QUESTION 5

i) American rule

Paula	Probability @60%	Daniel	Probability @60%
$7000	$4200	$7000	$4200
$9000	$5400	$9000	$5400
$11000	$6600	$11000	$6600

 

ii) English Rule

Paula	Probability @40%	Daniel	Probability @40%
$7000	$2800	$7000	$2800
$9000	$3600	$9000	$3600
$11000	$4400	$11000	$4400