Here are two observations about voluntary cosmetic surgery such as liposuction: anyone who wants to have it done can probably find a doctor happy to operate; so we can assume that the number of operations is driven by how many people request the surgery once a patient is under anesthesia, there's very little he or she can do to contribute to the safety of the operation Thus, it's probably reasonable to think that the number of liposuction accidents is determined by the levels of doctor (injurer) precaution and patient (victim) activity.

On the other hand, consider the health and environmental risks posed by privately-owned hydrogen power plants. Hydrogen fuel can dramatically reduce greenhouse gas emissions, but is highly flammable and explosive. There are no feasible precautions for potential victims; the number of accidents depends on the level of care taken by plant workers (injurer precaution) and the original decision of how many plants to build and their locations (injurer activity).

Assume that perfect compensation is possible in both cases, and neither liposuction surgeons nor hydrogen power plant owners are judgment-proof.

(a) First, suppose the price of liposuction surgery is set without regard for the liability rule - say, by government regulation - and that patients correctly perceive the risks of surgery. Liposuction surgery and hydrogen power favor different liability rules: strict liability leads to more efficient outcomes in one case, simple negligence leads to more efficient outcomes in the other. Explain which situation favors which rule, and why. (Don't just state that one rule is more efficient under certain conditions, explain why this is the case.)

(b) Now suppose instead that the supply of liposuction is perfectly competitive, so that surgeons earn zero profits and surgeons' expected liability costs are incorporated into prices.

Explain why either strict liability or simple negligence will lead to efficient outcomes in plastic surgery if patients correctly perceive the risk of accidents.

(c) Which rule will lead to better outcomes if patients underestimate the risk of surgery? Explain why.