Crop Insurance, NASCAR, and Seatbelts: Why the Safer We Get, the More Risks We Take

Paul Menard, driver of the #27 Peak/Menards Chevrolet, David Ragan, driver of the #34 Front Row Motorsports Ford, Michael Waltrip, driver of the #55 Aaron's Toyota, and Matt Kenseth, driver of the #17 Best Buy Ford crash during the NASCAR Budweiser Shootout at Daytona International Speedway in Daytona Beach, Fla., on Feb. 18, 2012. Jamie Squire/Getty Images

Commentary

In his famously odd 1975 book, “Platform for Change,” the British business professor Stafford Beer made the following observation:

“So we follow our noses. Our noses are going to be smashed up on the fascia board.

“So we will have an air cushion that inflates when we crash to protect us.

“Now that we can drive much faster and with less regard for others: we shall be all right.

“Don’t you think if we really cared about safety we could consider replacing the inflatable bag with a row of sharp spikes?”

This is not a serious proposal, you understand.

The “safety spikes” observation has had many authors over the past 60 years and has taken many forms. It is an illustration of paradoxes ranging from risk compensation to the “lemons problem” to “moral hazard” in insurance. The true first author may never be known.

But it seems that a plausible “first,” at least in terms of the particular phrase given here, is Gordon Tullock in the early 1960s. The general phenomenon is now called “risk compensation,” or the tendency for improvements in safety to have unintended consequences of increased risk-taking. (For more on Beer, see this.)

Tullock’s Original Intuition

This story was told by Richard McKenzie in an EconLib remembrance 50 years after the events described:

“I remember, as a young graduate student in the early 1970s, listening to several faculty members in the foyer discussing the case for regulating the internal safety of automobiles, then an emerging hot political topic. They were refining standard arguments regarding mandates for the installation of seatbelts, collapsible steering columns, padded dashes, and airbags, all proposed to save lives.

“Gordon emerged from his office on hearing the discussion and insisted: ‘You have it wrong! Interior safety features in cars will reduce the costs of accidents for drivers and encourage them to drive more recklessly, causing more pedestrian deaths. To reduce deaths, the government should require the installation of a dagger at the center of the steering wheel with its tip one inch from the driver’s chest. Who would take driving risks then?’”

McKenzie left the University of Virginia in 1965 and in his recollection puts the Tullock hallway incident in 1962 or 1963, which means (as far as I can tell) that this is the earliest use of the example. (Charles Goetz tells a similar story, for the same time period). That timing makes sense, because a large increase in highway traffic accidents, injuries, and deaths had come about as a result of the expansion of the national highway system and the increased power and sophistication of auto drive trains and suspensions. The National Traffic and Motor Vehicle Safety Act was being formulated and was passed in 1966, with the first mandatory safety features, including seat belts, becoming law in 1968.

The idea either spread or was arrived at independently (as indicated by the Stafford Beer quote at the outset). It wouldn’t have to be a dagger, of course. Neck belts would also be effective: Buckle a belt around your neck, and in even a minor accident your head would rocket forward through the windshield. But the dagger or “Tullock Spike” is an especially powerful image, which, as Don Boudreaux has noted, makes it extremely useful as a teaching tool. (The more technical version of the result is now called the “Peltzman Effect.”)

Amusingly, Warren Buffett used the image in 1991, in a speech at the business school at Notre Dame, to illustrate the problem of taking on excessive risk:

“The analogy has been made (and there’s just enough truth to it to get you in trouble) that in buying some company with enormous amounts of debt, that it’s somewhat like driving a car down the road and placing a dagger on the steering wheel pointed at your heart. If you do that, you will be a better driver—that I can assure you. You will drive with unusual care. You also, someday, will hit a small pothole, or a piece of ice, and you will end up gasping. You will have fewer accidents, but when they come along, they’ll be fatal.”

Another interesting application comes from insurance markets, where the question of who should bear risk is called “moral hazard,” a situation in which shedding liability for risk changes the level of risk that is taken. This is at the core of Tullock’s original thought experiment, of course: Since the driver has less risk of injury, that risk is transferred to pedestrians and other drivers by excessive speed and less care.

In 2012, the “Tullock Spike” came up (though not by name) in a discussion of crop insurance. The idea was that subsidizing crop insurance effectively subsidizes the taking of excessive risk, and reduces the incentives to limit damages, for farmers.

“The indemnity number will go up, especially for corn; more claims are coming in all the time,” said Cory Walters, assistant professor in UK agricultural economics.

“If we all had a dagger sticking out of our steering wheels,” Walters continued, “we’d be more careful [when driving]. But what if crop insurance removes that dagger? How would we drive then?”

The problem has most directly been recognized in contexts in which driving and risk are at the core of the action: the real “National Sport of America,” NASCAR. Beginning in 1988, NASCAR imposed “restrictor plates” as a safety measure, limiting the airflow of car engines and therefore the horsepower and speed of the cars. In 2004, an article was published in the Southern Economic Journal that concluded the “safety” measure had actually increased the number of crashes and multi-car pileups, though it had not affected the number of deaths.

But that is what you would expect. If speeds are suppressed, and safety equipment is improved, the risks of death and serious injury are lowered. The results should be increased selection of risky behavior by drivers, including close drafting and bumping. More recently, in February 2018, NASCAR switched from restrictor plates to the more precise and consistent “tapered spacers,” which have the same effect and the same “safety” rationale. The 2018 NASCAR “Cup Series” champion Joey Logano was just as clear about the likely effect:

“I totally expect to crash more cars [because of the spacers]. ... As cars are closer and drivers are more aggressive, a mistake will create a bigger crash. We can’t get away from it. ... You know how it is when you’re on the highway and they check up right in front of you. You can’t stop quick enough and you’re only going 70, you know? Try going 180. ... So I assume there will be more crashes. I assume we’re all going to tear more stuff up this year.”

Knowing Tullock as I did, I imagine that his reaction to the obvious problem of NASCAR drivers’ increasingly “tradin’ paint” would be to point out a dirty secret: NASCAR fans come for the “racin’,” but they stay for the crashes. Using a “safety” rationale, particularly one that reduces injuries but increases the number of wrecks, makes a lot of sense.

If anybody at NASCAR were serious about wanting fewer wrecks, they’d put Tullock Spikes in steering columns, not little plates in carburetors.

From the American Institute for Economic Research

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.