A train passing a farmer's property emits sparks that sometimes set fire to the farmer's crops. The crop damage can be reduced, however, if the railroad installs spark arresters on its trains, if the farmer moves his crops, or both. The following table summarizes the cost of the various possible actions, and the crop damage (if any):
(a) Which action yields the socially optimal outcome?
(b) What action will result under a rule of no liability? (Assume here and in subsequent questions that bargaining costs between the RR and farmer are high.)
(c) What action will result under a rule of strict liability?
(d) What action will result under a negligence rule where the due standard of care for the RR is to install arresters?