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March 17, 2006
Moral Hazard Solution c. 1906
From a letter to the editor in the March 17, 1906 NYT: It is especially desirable for the driver to sit on the left in an automobile, because, in case of collision, under the present custom, it is the passenger who is liable to be hurt, and this passenger is usually a woman. This sounds like a quasi-Peltzman solution to bad driving. For those not familiar, here is one explanation from fellow DOLer Michael Munger and one that is less sympathetic. The basic idea is that if a bad driver imposes potential negative externalities on the rest of us, then seat belts and other safety measures, while laudable in as much as they protect the innocent, have the potential downside in encouraging even more risky (and dangerous) behavior by the bad driver. If a bad driver bore the entire cost of his bad behavior, then it is possible his driving would change. Whether the benefits of safety legislation outweigh the negatives is, of course, an empirical question. What I find neat about little statements like the one from the NYT is that people were thinking like economists long before we economists came along. Posted by Craig Depken at 01:39 PM in Economics
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The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith
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