Mandatory Seat Belt Law Dilemma

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Mandatory Seat Belt Law Dilemma

• By Ben Hale

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Economic Issues

• Externalities
• Corrective Tax
• Property Rights

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Objective

• Increase seat belt usage
• Why?
• Additional costs (negative externalities) are
  imposed on society due to increased medical costs
  associated with occupants that were not utilizing
  their seat belt.
• Example
• Hospital bills are 50 higher for occupants that
  were not belted as opposed to those that were.
  Society bears 85 of these costs, not the
  occupants.

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Effectiveness of Seat Belts

• Seat belts are the number one defense against
  motor vehicle injuries and fatalities.
• -Seat belts restrain occupants from extreme
  forces experienced during car crashes.
• -Unbelted occupants frequently injure other
  occupants in crashes.
• -Seat belts prevent occupant ejection.
  Unrestrained occupants are ejected 22 percent
  of the time. When ejected, 75 of these
  occupants are killed.

Healing, R.F. (2003, April). Testimony of Richard
F. Healing. Testimony presentedbymember of the
National Transportation Safety Board before the
Wisconsin StateAssembly Committee on
Transportation on Primary Enforcement, Madison,
Wisconsin. http//www.ntsb.gov/speeches/healing/r
fh030424.htm
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Ways to Increase Usage

• Primary Seat Belt Laws
• -Seat belt use in states with primary laws
  average about 15 higher than in states with
  secondary laws.
• Enact effective public education programs to
  provide information to society about the dangers
  of not buckling up.
• -People need to be as informed as possible about
  the probability distribution of personal injury.

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Primary Laws Benefits Primary seat belt laws will
decrease the externality because fines and
punishment will provide an incentive for
occupants to buckle up. By buckling up, they are
essentially reducing the additional
costs. Limitations Primary seat belt laws could
act as a moral hazard in some circumstances in
which the driver feels more secure so he in
affect drives more carelessly.
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Public Education Benefits Public Education can be
funded with revenues collected from fines and
punishment. It will also decrease market failure
by educating people and providing them with more
perfect information to make a more informed
decision. Limitations Public Education will be
difficult to implement to every individual with
maximum efficiency.
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Externalities Caused by Unbelted Occupants

• 150 billion in societal costs
• 17 billion in medical care
• 55 billion to employers
• 54.7 billion in lost productivity
• Insurance/legal costs
• Pain and suffering

Bill Clintons Presidential Initiative
(1997) http//www.nhtsa.dot.gov/people/injury/airb
ags/Archive-04/PresBelt/fullreport.html
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Where Do These Costs Come From?

• The medical treatment of injuries and disability
  draw scarce medical resources from more efficient
  uses, and a significant part of the costs of
  these treatments falls on the public through
  increased taxes and insurance premiums.

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Externalities
MSC Additional Costs

MPC (Supply)
Additional costs
P
P
MWTwear(Demand)
Quantity of belt usage
Q
Q
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Diagram Explanation

• The externality generates additional costs that
  are not included in the original supply curve as
  depicted in MSC.
• When these costs are included, the optimal output
  or usage reduces to Q and the price increases
  from P to P.
• Occupants are able to use inputs at no charge.
  In this case, they get the benefits of health
  care without bearing the full amount.
• This creates a market failure in the amount of
  the extra costs which is represented in the
  shaded area.

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Solution to Externality

• Corrective taxation in the form of fines and
  punishment.
• Benefits
• Will reduce the amount of the externality.
• Violators will be paying for their own health
  costs and disability.
• Limitations
• Will be difficult to find the optimal amount
  considering the tax is in the form of fines and
  punishment.

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Corrective Tax Results
SE

SE
S
PP
D
Quantity of Belt Usage
Q Q
Q
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Corrective Tax (Fines) Diagram Explanation

• According to Holcombe, A corrective tax provides
  an incentive to reduce the amount of the
  externality.
• In the diagram, the external cost, E, reduces to
  E as a result of the corrective tax.
• The quantity of usage increases as planned as the
  improvement is made to Q. If completely reduced
  by the tax the quantity will find equilibrium at
  Q.
• The amount of the inefficiency is reduced from
  the original amount in the red area to the
  reduced amount in the blue area.

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Corrective Tax (Continued)

• Occupants will know that they are at risk of a
  fine or punishment if they are not belted. So,
  they will be more likely to wear their belt. This
  will decrease the chance of injury to occupants
  and ultimately reduce the cost to society.

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Poorly Defined Property Rights

• No clearly defined property rights to medical
  resources exist.
• Occupants are able to benefit from medical
  resources without paying in full for them.
• This provides an incentive to use too much of the
  resources which results in inefficient resource
  allocation.

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Diagram of Overused Resources

MC
P
MB
0
Q
Q
Quantity of Medical Resources
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Diagram Explanation

• If there are no cost for resource use, occupants
  will use the amount at Q, where the marginal
  benefits from additional use of the resource is
  zero.
• The occupants will reduce their use of resources
  to Q if they must pay the amount of the marginal
  cost that is imposed on others.

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Solution
Primary Seat Belt Laws Fines and Punishment

• This will impose some of the marginal cost on the
  occupant for not buckling up which will decrease
  the quantity of medical resources used.
• There will no longer be an incentive to overuse.

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Conclusion

• If there is an increase in seat belt usage, there
  will be less societal costs and losses in
  productivity.
• Primary seat belt laws and public education
  programs will provide incentives to increase seat
  belt usage. This will effectively reduce the
  external societal costs.
• Corrective taxes in the form of fines and
  punishment will also reduce the inefficiency as
  well a provide tax revenue.
• Poorly defined property rights to health
  resources enable occupants injured in car crashes
  to draw away from more efficient uses. Fines and
  punishment will make a drastic improvement by
  providing a disincentive to overuse. This will
  make society collectively better off.