A chemical company is considering locating a plant on the outskirts of a certain town. Although the town welcomes the benefits that this plant will bring, some residents have expressed concern about the possibility of an accident involving toxic chemicals. The city council has met to discuss the matter. Although none of the council has any background in chemistry or engineering, many have strong opinions (some pro and some con) about whether a building permit should be issued. One councilor, who has remained neutral throughout, suggests that the permit be issued if and only if the chemical company can demonstrate the ability (either through its own assets or an adequate insurance policy) to reimburse the townspeople for any damage caused by its factory. Explain the councilor's reasoning. Explain why this policy might be expected to lead to a socially optimal decision.