Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A
ECO 320 AFTER TEST 2 Questions with
Answers
Why is a trial economically inferior to a settlement on the same terms as the expected
trial
judgment?
Ans: A simple measure of the social costs combines administrative costs and costs of
errors. Administrative
costs are the sum of the costs to everyone involved in passing through the stages of a legal
dispute,
such as the costs of filing a legal claim, exchanging information with the other party,
bargaining in an
attempt to settle, litigating, and appealing.
The administrative costs of the settlement are much lower than those of a trial.
Consequently, the
settlement saves social costs. In general, settlements that copy the results of trials reduce
the social
costs of resolving disputes.
Transaction costs as private costs are also part of social costs as well. Transaction costs are
also lower
in a settlement than those of a trial.
Questions 10.3
Q&A
, Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A
Ans: EVT = (0.5)($100) + (0.5)(0) - $40 = $10
EVB = (0.7)($50) + (0.3)($10) = $38
EVC = (0.7)($50.00) + (0.3)($38 - $3.30) = 45.4
Net Profit = 45.4 - 10 = 35.4
T = Trial
B = Bargain
C = Claim
Net Profit = Claim - Trial
Example 3 at the beginning of this chapter concerns whether a judge should order a
divorcing couple to attempt mediation before beginning a trial. Assume that false
optimism causes trials and predict whether compulsory mediation would cause more
disputes to be settled without trial.
Ans: This involves applying the game theory model of settlement set out in chapter 10,
emphasizing that false optimism, does not precluded settlement, but narrows the threat
points of the parties so that the probability of settlement decreases.
Mediation is a non-binding settlement pushing parties to make settlements. It often
happens
for unions. Compulsory mediation might cause more disputes to be settled without a trial.
There is no guarantee that a compulsory mediation will compel involuntary information -
but it presents an opportunity for the opposite side to disclose evidence voluntarily helpful
to
its case.
Assume that discovery increases the optimism of plaintiffs and thus increases the value
of
their legal claims. Explain the consequences for the number of claims filed.ƒdd
Q&A
ECO 320 AFTER TEST 2 Questions with
Answers
Why is a trial economically inferior to a settlement on the same terms as the expected
trial
judgment?
Ans: A simple measure of the social costs combines administrative costs and costs of
errors. Administrative
costs are the sum of the costs to everyone involved in passing through the stages of a legal
dispute,
such as the costs of filing a legal claim, exchanging information with the other party,
bargaining in an
attempt to settle, litigating, and appealing.
The administrative costs of the settlement are much lower than those of a trial.
Consequently, the
settlement saves social costs. In general, settlements that copy the results of trials reduce
the social
costs of resolving disputes.
Transaction costs as private costs are also part of social costs as well. Transaction costs are
also lower
in a settlement than those of a trial.
Questions 10.3
Q&A
, Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A
Ans: EVT = (0.5)($100) + (0.5)(0) - $40 = $10
EVB = (0.7)($50) + (0.3)($10) = $38
EVC = (0.7)($50.00) + (0.3)($38 - $3.30) = 45.4
Net Profit = 45.4 - 10 = 35.4
T = Trial
B = Bargain
C = Claim
Net Profit = Claim - Trial
Example 3 at the beginning of this chapter concerns whether a judge should order a
divorcing couple to attempt mediation before beginning a trial. Assume that false
optimism causes trials and predict whether compulsory mediation would cause more
disputes to be settled without trial.
Ans: This involves applying the game theory model of settlement set out in chapter 10,
emphasizing that false optimism, does not precluded settlement, but narrows the threat
points of the parties so that the probability of settlement decreases.
Mediation is a non-binding settlement pushing parties to make settlements. It often
happens
for unions. Compulsory mediation might cause more disputes to be settled without a trial.
There is no guarantee that a compulsory mediation will compel involuntary information -
but it presents an opportunity for the opposite side to disclose evidence voluntarily helpful
to
its case.
Assume that discovery increases the optimism of plaintiffs and thus increases the value
of
their legal claims. Explain the consequences for the number of claims filed.ƒdd
Q&A
