Assume the negligence rule holds and the owner of the potentially polluting firm is risk averse. Assume that the regulator sets the due care level equal to the socially optimal level, so that ā=a^*. Let y¹<ŷ be the smallest wealth level for which a^sl(y¹)=a^*. Show that there exists some wealth level , such that:

(a) a^nr(y)=a^sl(y) for y

(b) a^nr(y)=a^* for y≥y̆ Here anr(y) denotes the optimal care level under the negligence rule.