Peltzman Effect

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The Peltzman Effect is the hypothesized tendency of people to react to a safety regulation by increasing other risky behavior, offsetting some or all of the benefit of the regulation. It is named after Sam Peltzman, a University of Chicago Graduate School of Business Economics professor.

From the forward of a talk by Peltzman at the American Enterprise Institute:

Sam Peltzman is one of the few economists, and probably the only regulatory economist, to have an effect named after him — the “Peltzman effect.” The Peltzman effect arises when people adjust their behavior to a regulation in ways that counteract the intended effect of the regulation. So, for example, when the government passes a seatbelt law, some drivers may respond by driving less safely. It turns out that the Peltzman effect has widespread application and has spawned, like much of Professor Peltzman’s other work, a veritable cottage industry for economists.^[1]

When the offsetting risky behavior encouraged by the safety regulation has negative externalities, the Peltzman effect can result in redistributing risk to innocent bystanders who would behave in a risk-averse manner even without the regulation. For example, if some drivers with a high tolerance for risk who would not otherwise wear a seatbelt respond to a seatbelt law by driving less safely, there will be more total accidents. Overall injuries and fatalities may still decrease due to a higher percentage of drivers involved in accidents wearing seatbelts, but drivers who would wear seatbelts regardless will see their overall risk increase. Similarly, safety regulations for automobiles may put pedestrians or bicyclists in more danger by encouraging risky behavior in drivers without offering additional protection for pedestrians and cyclists.