LAST (Family) NAME: _____________________________________
FIRST (Given) NAME: ______________________________________
STUDENT NUMBER: _______________________________________
UNIVERSITY OF TORONTO
Faculty of Arts & Science
APRIL 2023 EXAMINATIONS
ECO320H1S
An Economic Analysis of Law
Duration: 3 hours
Aids Allowed: Non-Programmable Calculator
Exam Reminders:
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Special Instructions:
All work should be in pen written on the lined portions of the exam booklets. Full marks will only
be awarded to fully explained answers accompanied by a fully labelled diagram or diagrams where
appropriate. Please read all questions carefully before answering them. Answer all questions.
Exam Format and Grading Scheme:
Each question has the value indicated.
Students must hand in all examination materials at the end
Page 2 of 4
(10 Marks)
QUESTION 1:
Compare and contrast the Normative Hobbes Theorem with the Normative
Coase Theorem and give one example for each theorem.
Fully explain this comparison, paying close attention to the concepts of
“efficiency” and “distribution”.
(5 Marks)
QUESTION 2:
Explain the rule of capture and how it relates to the “tragedy of the
commons”. Fully explain your answer using a diagram and one (1) example.
(10 Marks)
QUESTION 3:
Explain the optimism bias and how it affects when claimants might start
lawsuits and how it affects how claimants settle these lawsuits?
(10 Marks)
QUESTION 4:
Explain the rule “buyer beware” in home buying contracts? Should it
always apply? How does economic analysis determine the exceptions?
(10 Marks)
QUESTION 5:
“The profit-maximizing firm will adjust safety until the cost of additional safety
equals the benefit from reduced liability and higher consumer demand for the
good.”
Identify the model described in this statement. Draw a fully labelled diagram that
includes identifying where the underlined concepts in the statement appear in
your diagram. Explain the equilibrium that is contained in the statement.
Please Turn to Page 3
Page 3 of 4
(10 Marks)
QUESTION 6:
According to one definition, a “nuisance suit” is a lawsuit that has no merit
in the sense that the claimant’s EVT = 0. Which rule between “each pays his own”
or “loser pays all” results in fewer nuisance suits?
(10 Marks)
QUESTION 7:
Fully explain how private compensation for victims could be obtained from
defendants in a plea bargain? Compare this with a tort claim for the same
compensation where the joint and several liability rules apply.
(5 Marks)
QUESTION 8:
Lawyers in large firms with recognizable law firm names can frequently
charge higher than average hourly rates. Why?
(10 Marks)
QUESTION 9:
A claimant C sues a defendant firm D for ten (10) million dollars for
negligence. The evidence supports C having a 60% chance of winning and 40% of
losing. C enters a contingent fee arrangement with her lawyer. That lawyer will
receive 25% of what C receives at trial or settlement. D will pay its lawyer one (1)
million dollars if the case settles before trial and two (2) million dollars if the case
goes to trial. The Loser Pay rule applies.
(a) (5 Marks) Fully explain the settlement between C and D that might arise
before trial, calculating the threat points, scope for bargaining and the
cooperative settlement surplus of C and D.
(b) (5 Marks) If contrary to the evidence, C believes that C has a 40% chance of
winning and 60% of losing, show how this falsely pessimistic bias of C
affects the threat points, scope for bargaining and the cooperative
settlement surplus you calculated in (a)?
(5 Marks)
QUESTION 10:
The plaintiff who brings a suit to establish a more efficient precedent
enjoys only a fraction of its social value. Does this fact show that the government
should subsidize lawsuits by paying part of the cost of litigation?
Please Turn to Page 4
Page 4 of 4
(10 Marks)
QUESTION 11:
(a) (5 marks) Is it possible to design and enforce a law so that only honest
citizens have access to guns?
(b) (5 marks) By using supply and demand graphs, show how
decriminalization affects the supply and demand for guns?
(5 Marks)
QUESTION 12:
A house built on a flood plain has a fair market value of $50,000. When a
government plan to insure the house against floods applies, the fair market value
of the house increases to $150,000. Now the government wants to expropriate the
house in order to preserve the environmental quality of the flood plain. What is
the socially efficient price the government should offer? $50,000? $150,000?
Another price? Explain your answer.
Total Marks = 100
End of Exam