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

Do you know what the Peltzman effect is? It is a phenomenon observed by an economist from the United States (USA), Sam Peltzman, in 1975.

It is an effect that is related to laws, government security measures and risk behaviors in society. In this article we will see what relationship exists between these elements, what this effect consists of, and What are the most relevant investigations of this economist in relation to three types of laws of USA.

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Peltzman effect: what is it?

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

Through his studies dedicated to the automobile sector, he saw how, to more security measures, more risk behaviors on the part of drivers; that is to say, that the number of claims was not reduced, as was expected with said measures.

To this phenomenon, Peltzman gave the following explanation:

drivers “compensated” for these measures by adopting risky and dangerous behaviors (as we have seen, what the economist defined as the Peltzman effect).

This effect is talked about above all by liberal thinkers, who believe that if the state offers more measures protective, society will act with more risks and each one of us will stop taking responsibility for oneself and for others. others. In other words: the greater the security, the greater the irresponsibility in making decisions on the part of the citizens and the greater their risk.

Research

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

Regulation and the natural progress of opulence was one of Peltzman's most relevant essays, which deals with economics and state regulations. In it, he lays out five basic premises:

• That favorable effects appear in different areas of social life, as a consequence of sustained economic progress.
• That these effects can be slow and not very visible, on some occasions.
• That governments want to accelerate these effects through regulations.
• That people adopt "neutralizing" behaviors.
• That regulations are only removed if very disastrous results appear.

Laws studied by Peltzman

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

Here we will see the conclusions as a result of studying the results of each of these laws, and their relationship with the Peltzman effect:

1. The Vehicle Traffic and Safety Act (1966)

This law was intended to increase safety on the roads and, as a consequence, reduce the number of traffic accidents (and their associated deaths). Statistics for the years 1925-1960 revealed that the number of deaths in traffic accidents decreased by 3.5% per year. That is, security had improved (before the Law).

What was this improvement due to? To different factors: driver knowledge, better roads, etc. Specifically, said law was based on the fact that road safety basically depended on security elements available to cars, which had the function of protecting their occupants from accidents (rather, from their consequences).

However, Peltzman discovered that these regulations or security measures by the government, indirectly encouraged drivers to display more risky behaviors, because “with greater protection, the price of being risky was reduced” (that is, there was a “compensation” that drivers had in mind).

Results

In this way, the additional risks outweighed the benefits of these security measures; however, Peltzman was unable to calculate the exact proportions from these data.

Thus, through this Law, Although the number of deaths (of car occupants) due to traffic accidents decreased, the number of accidents increased remarkably, as well as the number of deaths of cyclists, motorists and pedestrians.

In this way, between the years 1966 and 2002 (that is, from the emergence of the Law), the total deaths by accident were they decreased by 3.5% per year, the same figure as before the Law, although the number of accidents did increase, as we have seen.

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2. The Disabled Persons Act (1990)

Another study that also shows the Peltzman effect. So, said law prohibits all types of discrimination against people with disabilities at work, and requires that they be offered a job suitable for their disability.

Before 1990, employment in this group was already increasing. However, after the approval of the law, different studies showed how said employment had been reduced in this group. How could it be? It seemed that the law was having just the opposite effect: creating incentives not to hire people with disabilities.

Specifically, what happened was the following: before the law, some employers hired people with disabilities; sometimes everything went smoothly, and other times not, which made the businessman do without his services.

What happens with the approval of the Law? That the relative costs of hiring and firing increase. In case of not hiring a person with a disability, the employer could be accused of discriminating, but if he hired her and then fired her, he could also be accused of discriminating, and also the costs were more tall.

Results

According to Sam Peltzman, with the passage of this Act, 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 directly tended not to hire people with disabilities.

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

3. The Endangered Species Act (1973)

The third Law that Peltzman studied alluded to endangered animals, and in his studies the Peltzman effect also ended up appearing. So, This law had the mission of protecting 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 alter anything that could harm them). What happened? That in 1973, 119 species appeared on the list.

Results

Over the next 30 years, 40 new species were added to the list each year. The results show how in 30 years only 6 species had been able to be "saved" (no longer considered endangered). So, the results of the law were very negative.

How did Sam Peltzman explain this? This researcher alludes to a neutralizing behavior of people, which he himself calls "preventive development". And to illustrate it, he gives an example: the species of the woodpecker. This species resides on farms that have many trees. If the bird appeared on one of these farms, the owners of the nearby farms would cut down the trees (because if not, they would lose all the wood). The same thing happened with other types of species, which ended up leading to the poor recovery of the species shown by Peltzman's results.

conclusions

We've seen some of Sam Peltzman's most impactful studies illustrating how and why the Peltzman effect occurs. We can draw two conclusions from them: if a security or protection law or regulation is enacted, Before that, an impact study should be carried out in terms of behaviors.

On the other hand, it is important that, after a specific period of time after the approval of a type of Law such as the exemplified, it is convenient to review whether said Law (regulation or measure) has offered positive or negative results in terms of its initial mission.

Bibliographic references:

• Bambaren, C. and Chu, M. (2013). Regulation of transport and traffic accidents by motorized vehicles in Peru. Rev Med Hereditary, 24(4): 305-310.
• Gregory Mankiw, N. (2012). Principles of economy. (6th ed.). Cengage Learning.
• Peltzman, S. (2013). Regulation and the Wealth of Nations: The Connection between Government Regulation and Economic Progress.