Risk Compensation - Peltzman Effect

Peltzman Effect

The Peltzman effect is the hypothesized tendency of people to react to a safety regulation by increasing other risky behavior, offsetting some or all of the benefit of the regulation. It is named after Sam Peltzman, a professor of Economics at the University of Chicago Booth School of Business. When the offsetting risky behavior encouraged by the safety regulation has negative externalities, the Peltzman effect can result in redistributing risk to innocent bystanders who would behave in a risk-averse manner even without the regulation. For example, if some risk-tolerant drivers who would not otherwise wear a seat belt respond to a seat belt law by driving less safely, there would be more total collisions. Overall injuries and fatalities may still decrease due to greater seat belt use, but drivers who would wear seat belts regardless would see their overall risk increase. Similarly, safety regulations for automobiles may put pedestrians or bicyclists in more danger by encouraging risky behavior in drivers without offering additional protection for pedestrians and cyclists.

The Peltzman effect has been used to explain Smeed's Law, an empirical claim that traffic fatality rates increase with the number of vehicle registrations per capita, and differing safety standards have no effect. Recent empirical studies have rejected Smeed's Law, which is inconsistent with the observation of declining fatality rates in many countries, along with the associated theory of risk homeostasis. . Roy Baumeister has suggested that the use of helmets in football and gloves in boxing lead to examples of the Peltzman effect. This effect is referenced in the 9th season CSI: Crime Scene Investigation episode, Woulda, Coulda, Shoulda: "The safer they make the cars, the more risks the driver is willing to take. It's called the Peltzman effect."