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Offsetting Behavior and the Benefits of Safety Regulations

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  • John C. Hause
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    Abstract

    The net effect of policies to reduce harm to potential victims is sometimes much smaller than the predicted effect because of failure to account for victim offsetting behavior (OB). A simple expected accident loss model is developed where one parameter, the coefficient of diminishing returns, measures quantitatively the marginal offset to the direct policy. The model should be useful in empirical efforts to estimate the OB effect. The article also obtains precise conditions under which OB more than offsets the direct policy effect, shows that stronger risk aversion increases the relative size of OB, and discusses welfare implications of OB. (JEL D18, D61, J28, K32, L51) Copyright 2006, Oxford University Press.

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    File URL: http://hdl.handle.net/10.1093/ei/cbj041
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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 44 (2006)
    Issue (Month): 4 (October)
    Pages: 689-698

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    Handle: RePEc:oup:ecinqu:v:44:y:2006:i:4:p:689-698

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    Cited by:
    1. Spash, Clive L., 2009. "The Brave New World of Carbon Trading," MPRA Paper 19114, University Library of Munich, Germany.
    2. Calcott, Paul, 2012. "Regulatory triggers and New Source Review," Resource and Energy Economics, Elsevier, vol. 34(3), pages 337-348.

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