Sometimes (more often than most people think) changes in incentives have unintended consequences. One of the most famous of these in economics is the Peltzman Effect, described by University of Chicago economist Sam Peltzman in the 1970s. Using U.S. data, Peltzman showed in this paper (JSTOR gated) that mandatory safety devices on cars, such as seat belts, do not reduce traffic deaths, and actually increase the number of non-fatal car accidents. How can we explain that?
Rational (or quasi-rational) drivers weigh up the costs and benefits of driving faster. The benefits include less time wasted on the roads (an opportunity cost - you give up some time you could spend doing something else). Moreover, the marginal benefits probably decrease the more a driver speeds (because opportunity costs increase the more time is wasted). The costs of driving faster include an increased risk of a serious car accident - this cost is made up of two parts: (1) the probability of a serious accident occurring; and (2) the health and other costs of the accident itself. The marginal costs increase as speed increases, because both the probability of an accident and its seriousness both increase.
If they are optimising, the driver will choose to drive at the speed where the marginal benefit (MB) of driving faster is exactly equal to the marginal cost (MC0). This occurs at S0 in the diagram below. At this point, driving a little bit faster entails a higher additional cost than the benefit they would receive (which is why they will drive no faster than S0).
When safety devices are installed in cars (e.g. seat belts, air bags, crumple zones, side impact bars, etc.), this changes the incentives that drivers face. These safety devices by definition make faster driving safer, and so they lower the cost of driving fast (since the seriousness of the consequences of an accident are reduced). So, in the diagram above, marginal costs are lower (MC1). This increases the optimal driving speed to S1, which increases the chances of an accident. What we observe then is a greater number of accidents in total (more drivers driving faster or more recklessly), but the number of traffic deaths might not decrease at all (more accidents, but the seriousness of each accident is less). In addition to Peltzman's paper, other more recent papers have demonstrated this as well (see here or here, the first one is ungated).
So, increasing car safety leads to what economists term "offsetting behaviour", because the actions of drivers act to offset the benefits of increased safety. One way of dealing with offsetting behaviour in this situation, mischievously suggested by the economist Gordon Tulloch (or by Armen Alchian, according to Steven Landsburg in his book The Armchair Economist, which I read not long ago (the first edition, not the new second edition)), is to attach a large spike to the steering wheel, aimed squarely at the driver's heart. Then they won't offset safety by driving faster!
Anyway, the point of this post was to briefly link to this new research by Andrew Maness, which uses data from 662 NASCAR races from 1994 to 2013. Maness finds that offsetting behaviour is alive and well in NASCAR:
As driver-safety improves by 10%, competitors' recklessness increases by as much as 3.8%. More concretely, NASCAR's combination of the HANS device, SAFER barrier, and Car of Tomorrow results in a 3.6% growth in wrecked vehicles.So, just like drivers in general, professional racecar drivers offset increases in safety by driving more recklessly. And not just NASCAR drivers, the same effect is observed in Formula One (gated).
[HT: Marginal Revolution]