There are externalized costs besides death though, like the resources deployed in the search and rescue effort. In the case of aviation you can also cause collateral damage or death.
Yes, but you have to allow a certain amount of freedom or everything grinds to a standstill.
The approach the FAA takes is perfectly reasonable: you can do this dangerous thing, but you can't legally make money from it, and if you "forget" to tell your passengers, the aircraft itself is labelled "Experimental."
Search and rescue is often seen by the military as a high quality training exercise. They feel the stress of a real exercise where someone’s life is on the line.
The approach the FAA takes is perfectly reasonable: you can do this dangerous thing, but you can't legally make money from it, and if you "forget" to tell your passengers, the aircraft itself is labelled "Experimental."