Academic journal article Journal of Risk and Insurance

On the Consequences of Behavioral Adaptations in the Cost-Benefit Analysis of Road Safety Measures

Academic journal article Journal of Risk and Insurance

On the Consequences of Behavioral Adaptations in the Cost-Benefit Analysis of Road Safety Measures

Article excerpt

ABSTRACT

It is sometimes argued that road safety measures or automobile safety standards fail to save lives because safer highways or safer cars induce more dangerous driving. A similar but less extreme view is that ignoring the behavioral adaptation of drivers would bias the cost-benefit analysis of a traffic safety measure. This article derives cost-benefit rules for automobile safety regulation when drivers may adapt their risk-taking behavior in response to changes in the quality of the road network. The focus is on the financial externalities induced by accidents because of the insurance system as well as on the consequences of drivers' risk aversion. We establish that road safety measures are Pareto improving if their monetary cost is lower than the difference between their (adjusted for risk aversion) direct welfare gain with unchanged behavior and the induced variation in insured losses due to drivers' behavioral adaptation. The article also shows how this rule can be extended to take other accident external costs into account.

INTRODUCTION

Behavioral adaptations of drivers to safety measures is a well-documented phenomenon; see OECD (1990). Following changes in the road-vehicle system affecting either highways safety or vehicle safety, road users sometimes adapt their behavior in a manner inconsistent with the initial goals of the safety measures: indeed, safer highways and safer cars often induce more dangerous driving. (1) Because of this behavioral adaptation, the decrease in accidents and fatalities may be lower than what was initially expected, and it may even fully vanish. In particular, using US data (1947-1972), Peltzman (1975) claimed that such offsetting effects have been virtually complete and that regulation has not decreased highway deaths. However, most studies lead to less clear-cut conclusions and they most frequently show that behavioral adaptation only mitigates the initial impact of road safety measures and that these measures still entail some residual effects. (2)

Behavioral adaptation to safety measures has been widely analyzed with the analytical tools of social psychology and cognition theory. In particular, Wilde (1982, 2001) develops a theory of risk homeostasis according to which individuals are prepared to accept a given target level of risk and he derives a number of implications for safety and health. In Wilde's theory, the dynamics of individual behavior results from a gap between the perceived level of risk and an (exogenously given) target level of risk. This gap follows from the fact that individuals have bounded perceptual skills. However, if the risk-taking behavior by drivers is put within the framework of expected utility maximization (for instance by speed choice), then risk homeostasis is possible only under very restrictive conditions; see Janssen and Tenking (1988). Nevertheless, behavioral adaptations to changes in the road transport system is a much more general phenomenon than risk homeostasis which is expected to hold under fairly general conditions. The fact that compensation is partial or total (or even that there is overcompensation) is a matter that can be settled on the basis of empirical observations only. As summarized in the key conclusions of an OECD (1990) expert group report "Behavioral adaptation (to changes in the road transport system) exists, and does have an effect on the safety benefits achieved through road safety programs. Results indicate that, generally, behavioral adaptation does not eliminate the safety gains obtained, but it does reduce the effectiveness of road safety programs in a number of cases."

Given the empirical fact that drivers adapt their behavior to changes in their environment (particularly to road safety measures), an open question is how these behavioral adaptations should be taken into account in the cost-benefit analysis of public investments and traffic regulation. In particular, behavioral adaptation may totally or partially offset the safety gains of an investment transport program. …

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