ECO 320 AFTER TEST 2 2025
QUESTIONS AND ANSWERS
Why is a trial economically inferior to a settlement on the same terms as the
expected trial
judgment? - ANSWER-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.
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, 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 - ANSWER-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. - ANSWER-This involves applying the
game theory model of settlement set out in chapter 10,
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 2
QUESTIONS AND ANSWERS
Why is a trial economically inferior to a settlement on the same terms as the
expected trial
judgment? - ANSWER-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.
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 1
, 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 - ANSWER-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. - ANSWER-This involves applying the
game theory model of settlement set out in chapter 10,
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 2
