L=A 

Strictliability induces the efficient amount of care by the injurer and the victime will chose to take no care

If the standard of care is met, the injurer is not liable

Injurer has the dominant strategy to invest in e*

If met costs are only Wx

The victim will also invest in e* level of care to minimize costs since she knows the injurer has met their duty

Injurer is only liable for leftmost boxes where x* isnt met

The injurer is only liable when the victime takes care and the injurer does not 

Top Left box 

As long as the injurer takes care, he is not liable 

If they both do not take care, he is not liable

The injurer is always liable if the victim met efficient level 

If victim fails to meet level of care, injurer is not liable 

Injurer is not liable if he took care and the victim did not

He is liable if they both failed to take care, and whenever the victim took care 

Not liable for bottom right box

If the burden of precaution is less than the P(x)A

then it is efficient to take care

overestimate the effects of untaken precaution on the probability of accidents that actually occured

may cause potential injurers to take more precaution than they really believe to be necessary

What is the price under a rule of strict liability? 

No liability?

It is the actual social cost 

Or, it is the cost that is seen by the consumer

if you make a claim in year two 

your insurance will likely increase in year 3 -> reduce but do not eliminate moral hazard

Increase in insurance premiums

Adverse selection

cumpolsory insurance, posting bond, replacing ex-post liability with ex-ante regulation

Replace rule of strict liability with negligence 

Victims wont make claims, and the injurers wont get the signal that what they are doing is unacceptable. 

they will as a result take less precaution and there will be many accidents 

The injurer has a third party take liability - like a parent. or an employee has a respondeat superior

Incentivizes care because employers are more likely to make sure there employees are properly trained

the recovery is limited to 100 percent under jointly and severally liable 

this makes the defendants responsible for figuring out who is liable

makes all defendants internalize the costs of an accident - thus creating incentives for optimal precaution by each of them.  

creates incentive for each defendant to internalize part of the accident and to externalize part of the cost. 

may not create incentive for efficient precaution

Law favors this because eager victims might go after the injurer with the most money

This increases incenrtives for those with shallow pockets and their precaution reduces accidents the most 

Large number of tort claims come in at once - like for earth quake insurance 

Liability law does not cover exposure to risk, only actually aquiring something