ABSTRACT
In the previous chapter we analyzed static and dynamic games with complete information under conditions of risk and uncertainty. In this chapter we will apply some of those concepts to an analysis of such fundamental legal concepts as negligence, liability, and damages in the AngloAmerican system of torts and contracts.1 We will demonstrate how the choice of a tort-law regime can affect payoffs from alternative strategy profiles. We will also see that if incentives are properly structured, the system of tort law can result in socially efficient Nash equilibria. This will be followed by a discussion of an area of the law that is of particular interest to market participants. Explicit and implicit contracts form the basis of all business transactions. A failure to perform a service or deliver a product with expected characteristics can result in grievous damages for either or all of the parties concerned.
