I am pleased to host a guest post by Linda Sun, a student in my “Monetary and Financial Theory” class. This is the 11th student guest post this semester. You can see the rest here. Linda’s post is a work of economic analysis satire.
Update: Like Mike Smitka in a comment below, Paulo Mauro tweets that Linda was not the first to come up the essential idea:
Great economist Mike Mussa used same analogy (he would say a “spike in steering wheel”) to dismiss concerns about moral hazard.
But I think Linda makes the point in a memorable way:
The effect of seat belts and air bags on car crash outcomes has a long debated history. On the one hand, seat belt keeps driver and passengers in their seats and airbags make them much safer when a car crash happens, which decreases traffic fatalities. On the other hand, it has been suggested that due to compensating behavior, drivers drive faster and closer to the vehicle in front when they have security precautions, which increase the probability of an accident and therefore put non-occupants, namely pedestrians, bicyclists and motorcyclists at greater risk (Peltzman, 1975).
But what is the ultimate overall effect of seat belt and airbags on traffic fatalities in practice? There is many paper examining the effect of mandatory seat belt law and airbags, reaching different conclusions. In Alma Cohen and Liran Einav’s paper(2001), they control the endogeneity of seat belt usage and find that it decreases overall traffic fatalities. In their paper, the compensating behavior theory (which suggests that seat belt use also has an adverse effect on fatalities by encouraging careless driving) is not supported by the data. Bhattacharyya and Layton(1979) similarly find that seat belt law have significant negative effect on traffic fatalities overall. On the other hand, McCarthy (1999) finds that a mandatory seat belt law increases the number of fatal accidents.
Though there is no common conclusion on the overall effect of seat belt and airbags on traffic fatalities, in the spirit of the compensating behavior theory, I think there is a surefire way to force drivers to drive more carefully, and reduce traffic accidents: changing all cars’ front airbags to axes.
Just imagine, what would you do if you know that your car has an axe installed in front of you, which would pop out if there were a harsh impact? You would drive as carefully as possible and try to avoid any potential car accident. In fact, installing an axe is like having a police car right beside you, only more effective because the penalties imposed by the axe are so much more sever than a ticket. By making the cost of careless driving almost infinitely large, no one will drive carelessly.
Second, unlike airbags–which save occupants’ lives but increase the risk on non-occupants by compensating behavior theory–an axe concentrates the cost on the person whose behavior controls the risk. Threatened by the axe, drivers will drive more consciously and cautiously, and they will not compete with pedestrians, bicyclists or motorcyclists any more. (Drivers are the “disadvantaged” group under this plan.) Thus this change saves the lives of non-occupants of a car.
Third, installing an axe helps by discouraging bad drivers from driving at all–positive selection. If someone is a rookie, will he dare to risk his life in traffic before practicing on low-traffic roads? No! The total number of miles driven by rookie drivers in tough situations would decrease significantly, leading to increases in traffic safety. Indeed, many people who know they would be bad drivers will simply choose to use public transportation instead. Riding the bus can look awfully good compared to facing a threatening axe.
Installing airbags and seatbelts is a way to try to minimize the damage after a car accident has already happened. But an axe can prevent an accident from happening in the first place.