Question

My bike is worth $M to me and $Y to you. Unless I buy a fancy lock that costs $F, you are able to take my bike.

Suppose that M > F > Y. Suppose that I have a liability right over the bike. That is, you choose whether or not to take the bike, but you must compensate me for the consequences of your choice. However, there are litigation problems. In particular, the court mistakenly believes that my bike is worth zero dollars to me. There are also bargaining problems: you and I hate each other and refuse to negotiate. What outcome do we expect?

a.You will take the bike, I will buy the lock, and no payments will be made.

b. You will take the bike, I will not buy the lock, and no payments will be made.

c. You will not take the bike, I will buy the lock, and you will pay me F in damages.

d. You will not take the bike, I will buy the lock, and no payments will be made.

e. You will take the bike, I will not buy the lock, and you will pay me M in damages.

Answer 1

Bike worth to me: $M

Bike worth to you: $Y

Cost of Lock: $F

It is Given: $M> $F> $Y

As it is a liability right over the bike, the owner should get some compensation for it. On the other hand, the court mistakenly believes that the bike is worth zero dollars. So, something more than zero dollars would be satisfactory.

But in order to save the bike, the owner has to buy a lock worth $F. And they both hate each other and no bargaining takes place. So, the correct option will be You will take the bike, I will not buy the lock, and no payments will be made.