|
Abstract
|
Rachel Dardis's article [ref below] is an important and useful cost-benefit analysis of seat belt usage by consumers. Finding a divergence between the social and private benefits of wearing seat belts demonstrates the presence of externalities in the seat belt issue. The fact that only 13 percent of Americans wear seat belts, perhaps, can be explained by consumer ignorance and irrationality, and also, to a limited degree by insurance coverage of some accident costs. Dardis, however, suggests that it may be rational for drivers of large cars not to wear seat belts, if their implicit user costs of wearing seat belts amounted to $104 per year. Although Dardis stated that this result held for risk averse consumers, I will show that the result depends on the degree of risk aversion that consumers have.
For a wide variety of safety issues, divergence between private and social costs can be used as a justification for government regulation of safety. It is, therefore, important to ascertain what is rational for individual consumers. If rational behavior for individuals is consistent with optimal behavior considering all social costs and benefits, then the informed buyer approach [2, p. 245] might be an effective alternative to mandatory product standards.
Dardis used a utility analysis approach and discussed the difference between a risk-averting and a risk-seeking individual in maximizing expected utility. This approach could have provided additional insight into the issues discussed by Dardis, but she dropped the concepts of risk-seeking and risk-averting utility maximization after the theoretical discussion and only applied her empirical analysis to maximization of expected wealth. One of Dardis's conclusions-that the decision by drivers of large cars not to use seat belts is consistent with risk aversion-was not proven by the analysis.
The rest of this comment presents a simplified hypothetical example of maximization of expected utility for a class of utility functions ranging from risk seeking to extreme risk averting. The problems of applying utility analysis to Dardis's empirical analysis will be described, and implications will be discussed.
Dardis, R., "Consumer Risk Response and Consumer Protection: An Economic Analysis of Seat Belt Usage," Journal of Consumer Affairs 1983; 17 (2): 245-261. |