Consider the bilateral precaution setting between a driver and a skateboarder. Skateboarders can reduce the risk of getting hit by wearing a flashing helmet with special sensor. Drivers can reduce the risk of accident by having Subaru EyeSight driver assist technology on the car. Imagine theres only one skateboarder and one driver, and the likelihood of an accident is as follows:

		Injurer Precaution
		No Drive assist	With drive assist
Victim Precaution	No helmet	8%	3%
	With helmet	5%	1%

The damage done by an accident is $100,000, and compensation is perfect. The flashing helmet costs $1500, and the drive assist cost $3000 (after subsidy). There is no insurance drivers bear their own liability costs.

(a) What is the efficient level of precaution by both sides? (No calculus needed, just compute the total social cost expected cost of accidents plus precaution under the four possible combinations.)

(b) What levels of precaution by both parties will a rule of no liability lead to?

(c) What levels of precaution will a rule of strict liability lead to?

(d) Show that, regardless of what the skateboarder does, its efficient for the driver to have drive assist; and regardless of what the driver does, its efficient for the skateboarder to wear a vest.

(e) What levels of precaution would a rule of simple negligence lead to?

(f) What levels of precaution would a rule of strict liability with a defense of contributory negligence lead to?

(g) Who bears the residual risk of accidents (pays the cost of those accidents that still occur) under simple negligence? What about under strict liability with a defense

of contributory negligence?

(h) What can you say about the levels of driver and skateboarder activity under these two rules?