Bastiat’s Bastions

In case you haven’t heard, NASCAR’s Daytona 500 finished down in Florida this year amid not just flags, but also flames, flips, flats and flying flack. Here is some Youtube footage of the final lap.

What does this have to do with economics, though?

It’s a matter of a certain type of substitution, something that economists call “moral hazard.”

For a very long time, economists have noted that in the presence of insurance, say fire insurance, people reduce their pursuit of safety in other forms. For instance, people with fire insurance are less likely to do the same things to reduce fires that people without fire insurance would do. It’s a matter of substituting one form of danger reduction for another.

One of my own professors in graduate school, Gordon Tullock, told generations of economists about how seat belts endangered others. His story was that once auto drivers felt safer because of seat belts or other devices to protect the driver, they tend to increase their speeds and drive a little less cautiously. While this increased danger from fast driving gets mitigated for others in cars because they would also be wearing seat belts, the increased danger is not mitigated for pedestrians. Pedestrians would be in more danger from cars than before.

Tullock offered, as the ultimate safety device for the protection of pedestrians, a simple dagger mounted in the steering wheel column facing the chest of the driver. With such a device, you can be sure that few accidents would occur. Of course, there would be very few cars on the road as well.

Russ Sobel (WVU) and Todd Nesbit (Penn State at Erie) are authors of “Automobile Safety Regulation and the Incentive to Drive Recklessly: Evidence from NASCAR,” forthcoming in the Southern Economic Journal. We were lucky to have Dr. Nesbit present this paper in a seminar here two years ago. What Sobel and Nesbit show is that after Dale Earnhardt died in a NASCAR crash and NASCAR responded by increasing the safety devices required to protect drivers, the number of NASCAR accidents went up by more than what could be accounted for by mere chance. In other words, as is expected from the theory of moral hazard, the tough rules NASCAR adopted to increase driver safety was met by offsetting risky driving behavior resulting in more accidents.

Is the recent wreck in that final lap at Daytona just because of Moral Hazard and the extra safety equipment required after the Earnhardt tragedy? That really can’t be determined. All we can say is that the recent NASCAR wreck is part of a lot of wrecks in NASCAR and this higher rate of accidents can be attributed to the increase in the safety of drivers from the new regulations.

Some other places in sports where we might see this type of offsetting behavior is in contact sports such as football after pads and helmets were worn routinely. Imagine how different football would be played if there were no pads or helmets used. I doubt the hitting would be nearly as hard. I would bet that there are certain types of injuries that have increased along with the degree of protective equipment.

I thought I would end this on the lighter side by sharing with you a joke that was sent to me by an excellent commenter on this blog, a real critical thinker. Remember when reading this that seat belt laws have increased our sense of safety when driving. So, here is the joke Steve W. sent:

The National Transportation Safety Board recently divulged they had covertly funded a project with the US auto makers for the past five years, whereby the auto makers were installing black box voice recorders in four-wheel drive pickup trucks in an effort to determine, in fatal accidents, the circumstances in the last 15 seconds before the crash. They were surprised to find in 49 of the 50 states the recorded last words of drivers in 61.2 percent of fatal crashes were,

“Oh, SH*T!”

Only the state of Louisiana was different. There, 89.3 percent of the final words were:

“Hold my beer and watch this.”

MC

This entry was posted on Sunday, March 4th, 2007 at 11:55 pm and is filed under General, Sports. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.