Essential UCLA School of Economics: The Economics of Unintended Consequences
Welcome to the essential ideas of the UCLA School of Economics.
Many people assume that regulations designed to achieve a specific result
—say increased safety—will actually achieve that intended outcome.
But economist Sam Peltzman, a key member of the UCLA School of economics,
thought that because human behaviour is so complex,
regulators cannot anticipate all the consequences of their regulations,
and therefore regulations might not achieve their intended results.
They may even achieve the exact opposite. Let's explore this idea using the example of
safety regulations for cars from Peltzman's own research.
In the mid-to-late 1960s, the United States federal government wanted to reduce traffic
fatalities and serious injuries from car accidents.
So the government mandated a number of safety features, including seat belts for all
occupants, padded dashboards, dual braking system, and energy-absorbing steering
columns. But - following the introduction of the new safety regulations,
traffic fatalities didn't fall.
What Peltzman discovered was that after these regulations were introduced, deaths of
people in cars fell, but deaths of pedestrians and motorcycle drivers actually increased.
That's because the new safety regulations made accidents less dangerous to drivers,
and so the result was that drivers drove more intensely.
For example, they drove faster, and followed more closely behind cars in front of them,
which reduced safety for pedestrians and motorcycles. And so the regulations that
increased the safety of drivers had the unintended consequence of increasing traffic
deaths for pedestrians and motorcyclists.
Peltzman's idea that making things safer causes people to take more risks has become
so well-known that many economists now refer to this kind of offsetting behaviour as
“The Peltzman Effect.” It should provide caution to bureaucrats and politicians who
believe that problems can be easily solved by imposing regulations.
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