Best way to provide lighting in stairwell?

I'm trying to fix the lighting in my stairwell to the basement. The previous owner just installed a surface mount light bulb and ran the cord back to a surface mounted electrical box with a switch, it's less than ideal and prone to problems since it's also just plugged into a nearby outlet.

I can't figure out if I should be putting in a recessed light above (which would have to deal with the limited space since there is a set of stairs above it too) or if I should do the down lighting by the stair treads which would at least light up where you walks. any ideas?

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