Peltzman effect: what it is and what it explains about social psychology

Do you know what the Peltzman effect is? This is a phenomenon observed by an American economist, Sam Peltzman, in 1975.

It is an effect linked to laws, government security measures and risky societal behavior. In this article, we will see what relationship there is between these elements, what this effect consists of and what is the most relevant research of this economist in relation to three types of American laws.

    Peltzman effect: what does it consist of?

    The Peltzman effect is defined as the tendency of people to adopt riskier behaviors in the face of more security measures. This effect was observed by an economist, professor at the University of Chicago, Sam Peltzman.

    Through his studies dedicated to the automotive sector, he saw how, in addition to safety measures, riskier behavior on the part of drivers; that is, the number of requests has not been reduced, as expected with these measures.

    To this phenomenon, Peltzman gave him the following explanation: drivers “compensated” for these measures by adopting risky and dangerous behavior (As we have seen, what the economist defined as the Peltzman effect).

    This is especially true of liberal thinkers, who believe that if the state offers more safeguards, society will act with more risk and each of us will stop taking our responsibilities and those of others. In other words: more security, more irresponsibility in the decision-making by citizens and more risks.

    research

    Sam Peltzman’s research on the Peltzman effect went beyond state security measures (or regulations), and he also studied other types of measures / regulations. However, it must be said that his safety studies were the most relevant.

    The regulation and natural progress of Opulence was one of Peltzman’s most relevant essays, Which deals with economics and state regulation. In it, he establishes five basic premises:

    • That favorable effects appear in different areas of social life, following sustained economic progress.
    • That these effects can sometimes be slow and barely noticeable.
    • That governments want to accelerate these effects through regulations.
    • That people adopt “neutralizing” behaviors.
    • This regulation is only removed if very disastrous results appear.

    Laws studied by Peltzman

    Thanks to his research on the Peltzman effect, Sam Peltzman focuses on studying three types of legislation (Laws), of various kinds, in the United States (USA).

    We will see here the conclusions following the study of the results of each of these laws, and their relation with the Peltzman effect:

    1. Road and Highway Safety Act (1966)

    This law aimed to increase road safety and, therefore, reduce the number of road accidents (and their associated deaths). Statistics for the years 1925-1960 revealed that the number of fatalities in traffic accidents has fallen by 3.5% per year. In other words, security had improved (before the law).

    What was the reason for this improvement? To different factors: knowledge of drivers, better roads, etc. More precisely, this law was based on the fact that road safety essentially depended on the safety elements available to cars, which had the function of protecting their occupants from accidents (rather from their consequences).

    However, Peltzman found that these government regulations or safety measures, they indirectly encouraged drivers to adopt riskier behaviors, Because “for better protection, the price of risk was reduced” (ie there was “compensation” that the drivers had in mind).

    results

    In this way, the additional risks outweigh the benefits of these security measures; however, Peltzman did not calculate the exact proportions from this data.

    So, through this law, although the number of deaths (of car occupants) due to traffic accidents has decreased, the number of accidents has increased significantly, As well as the number of deaths of cyclists, motorcyclists and pedestrians.

    Thus, between 1966 and 2002 (i.e. since the entry into force of the law), the total number of accidental deaths was reduced by 3.5% per year, the same figure as before the law , although they have increased the number of accidents, as we have seen.

      2. The rights of persons with disabilities (1990)

      Another study which also highlights the Peltzman effect. So this law prohibits all forms of discrimination against people with disabilities at work, And demands that they be offered a job adapted to their disability.

      Before 1990, employment in this group was already increasing. However, after the adoption of the law, various studies have shown how this occupation was reduced in this group. How is it possible? It seemed that the law had exactly the opposite effect: to create incentives not to hire people with disabilities.

      More specifically, this is what was happening: before the law, some employers hired people with disabilities; sometimes everything went to the rear, sometimes not, which meant that the employer was dispensing with its services.

      What about the adoption of the law? what the relative costs of hiring and firing are increasing. If a disabled person was not hired, the employer could be accused of discrimination, but if he hired them and then fired them, they could also be accused of discrimination, and in addition the costs were higher.

      results

      According to Sam Peltzman, with the passage of this law, the employer had to face the cost of hiring and the cost of not hiring. However, since the former (hiring costs) were higher, the employer tended not to hire people with disabilities directly.

      In this way, the reduction occurred in new hires after the law, and not so much in the layoffs of those who were already working.

      3. The Endangered Species Act (1973)

      The third law that Peltzman studied referred to endangered animals, and in his studies also resulted in the Peltzman effect. like that, this law was intended to protect endangered species, And directs the Fish and Wildlife Service (FWS) to determine which species are endangered (or may be in the future) and which are not.

      Thus, the species included in this list were “protected” (since the private owners of their habitat areas could not modify anything that could harm them). What happened? That in 1973, 119 species were on the list.

      results

      Over the next 30 years, 40 new species were added to the list each year. The results show that in 30 years, only 6 species were able to “save themselves” (cease to be considered endangered). like that, the results of the law were very negative.

      How did Sam Peltzman explain this? This researcher alludes to behavior that neutralizes people, which he calls “preventive development”. And to illustrate, give an example: the species of woodpecker. This species resides on farms that have many trees. If the bird appeared on one of these farms, the owners of the neighboring farms would cut down the trees (because if they didn’t, they would lose all the wood). The same happened with other types of species, which resulted in poor recovery of species with Peltzman results.

      conclusions

      We’ve seen some of Sam Peltzman’s most impactful studies, which illustrate how and why the Peltzman effect occurs. From them, we can draw two conclusions: if a safety or protection law or regulation is published, before leading an impact study on behavior.

      On the other hand, it is important that after a specific time interval after the approval of a type of law like those illustrated, it is desirable to check whether said law (regulation or measure) has offered positive results or negative compared to its initial mission.

      Bibliographical references:

      • Bambarén, C. and Chú, M. (2013). Regulation of motor vehicle transport and traffic accidents in Peru. Rev Med Hered, 24 (4): 305-310.
      • Gregory Mankiw, N. (2012). Principles of economics. (6th ed.). Learning Cengage.
      • Peltzman, S. (2013). Regulation and the wealth of nations: the link between government regulation and economic progress.

      Leave a Comment