Law and Economics — DU B.A. (Hons.) Economics Previous Year Question Papers

Name of the`Paper: Law and Economics 1. a) Why do some cases go to trial instead .of following the path to a s'ettlement? Explain with. the help of Differing perception Model? ` (8 marks) b) C0nsider a contract for the construction of a house where the builder faces uncertain cos,ts. In particular, her costs can take one of three values : High (Ch), (Cm), or Low(C]) .Assume that breach is efficient only when costs are high, and that Ch >V > Cm > P > C[. Here V is the buyer's value of performance and P is the price to be paid by the buyer to the builder. Let q be the probability that costs are low or medium and (`1 - q) the probability that costs are high. Show using this case that commercial impracticability ensures efficient breach on the part of the builder as well as efficient reliance investment choice by the buyer. (10 2. a) How does the "Asymmetric Information model" `explain the occurrence of trial. (9 b) "Under sequential care accidents, the efficient rule depends on which party moves first." Do you agree? Explain. Discuss the rule that can be used to remedy this deficiency. (9 3. Land pooling mechanism is a better altemative to the traditional mechanism of land transfer. Do you agree? Explain. What is the Indian experience with the land pooling mechanism of land transfer? (18 marks) 4. a) Discuss the liability rules of simple negligence and strict liability with contributory negligence. Discuss the efficiency aspect of these liability rules under bilateral care sequential care model. (9 b) A manufacturer (buyer) signs a contract with a supplier (seller) for the delivery- of a key machine component. The buyer must make a non-salvageable setup investment R (for plant preparation and tooling) before the component is delivered. The value of performance to the buyer, V, depends on the amount of investment R as follows: Reliance Investment (R) Value if Delivered (V) ii. The contract price, payable on successful delivery, is Rs. 2,000. Assume that performance is certain. Which level of rel.iance R maximizes the buyer's net return from the contract? (2 Now suppose that the buyer anticipates a 50% probability of breach, in which case the reliance investment is lost but the buyer does not pay the price. What level of R maximizes the buyer's expected return (ignoring damages)? (3 iii. Suppose the buyer is protected by unlimited expectation damages. What level of reliance R will she choose in this case? Compare and explain how this choice differs from your answers to parts (i) and (ii). (4 5. a) A restaurant owner enjoys a quiet ambience that attracts customers who prefer peaceful dining. A nearby vacant property owner plans to open a live music cafe. The cafe can choose between acoustic music (low noise) or DJ nights (high noise). The profits of the cafe and the restaurant are given below: Type of Activity Cafe's Profit (Rs.) Restaurant's Profit (Rs.) None (vacant) 0 2,40,000 Acoustic Music 1,80,000 1,40,000