> Except that we know that it doesn't work like that. Train drivers are ridden with extreme guilt every time "their" train runs over someone, even though they know that logically there was absolutely nothing they could have done to prevent it. Don't see why it would be any different here.
It's not binary. Someone dying -- even with no involvement -- can be traumatic. I've been in a position where I could have taken actions to prevent someone from being harmed. Rationally not my fault, but in retrospect, I can describe the exact set of steps needed to prevent it. I feel guilty about it, even though I know rationally it's not my fault (there's no way I could have known ahead of time).
However, it's a manageable guilt. I don't think it would be if I knew rationally that it was my fault.
> So no, market doesn't "work everything out".
Whether or not a market works things out depends on issues like transparency and information. Parties will offload costs wherever possible. In the model you gave, there is no direct cost to a car maker making less safe cars or vice-versa. It assumes the car buyer will even look at insurance premiums, and a whole chain of events beyond that.
That's different if it's the same party making cars, paying money, and doing so at scale.
If Tesla pays for everyone damaged in any accident a Tesla car has, then Tesla has a very, very strong incentive to make safe cars to whatever optimum is set by the damages. Scales are big enough -- millions of cars and billions of dollars -- where Tesla can afford to hire actuaries and a team of analysts to make sure they're at the optimum.
As an individual car buyer, I have no chance of doing that.
Ergo, in one case, the market will work it out. In the other, it won't.