Tort Hypothetical 

The tort hypothetical needs one adjustment, I think. Scenario Three reads:

"If a cause of action does not exist, and the damage equals $100 while the cost of the wall equals $50, the wall will exist. Even though #2 cannot win the lawsuit, he or she will still pay #1 some amount between $51 and $99 to build the wall."

This doesn't seem correct. If a cause of action does not exist, #2 cannot shift the $100 cost onto #1, so #2 is faced with two options: incur the $100 damage or pay a lower amount to avoid that damage (by constructing a wall or having a wall constructed). The utility-maximizing choice would be to pay $50 to build the wall herself. She wouldn't pay more than that to have #1 build the wall.