Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, November 19, 2004

The Economics of Bicycle Helmets

I have worn a helmet while bicycling for over 30 years; my major investments and wealth have been in the form of human capital, and it has made sense to protect this capital. Also, I always insisted that my children wear bicycle helmets, and I encourage others to do so, too.

But now we have laws requiring people to wear bicycle helmets.

The economic effects of such laws are far from clear, as pointed out in Andrew Coyne's blog here and here. I'm especially intrigued by the argument that requiring bicycle helmets means more people will drive, leading to more pollution, congestion, etc. It should not surprise us that people respond to incentives by changing their behaviour.

From a libertarian perspective, I'm not sure why the gubmnt should have an interest in whether people wear bicycle helmets. Why not just let people choose which risks they want to take and then let them accept responsibility for the outcome? Before you urge I be fired for asking such questions, please read on...

I can think of two closely related reasons that we don't adopt such a laissez-faire attitude toward such things as bicycle helmets (or seat belts, for that matter). Both justifications involve the concept of externalities.

  1. Even when people knowingly choose to take the risk of riding their bicycles without helmets, if they later become injured, we would look after them to some extent. We wouldn't (at least in Canada we wouldn't) deny them some basic health care; and we wouldn't require their families to suffer enormous financial losses just because a bicyclist in their family chose to take the risk of not wearing a helmet.
    And if people know that others will look after them (and their dependents) in the event of serious injury, then at the margin some will choose to eschew wearing helmets, for reasons of cost and/or comfort. They will choose instead to let others in society bear at least some of the downside risk of their decision. It is impossible to internalize this externality through the market. And this market failure leaves open the possibility (it's not a certainty!) that regulation might help deal with it.

  2. In a world of socialized medicine, people who take risks quite clearly impose costs (in a probablistic sense) on all the taxpayers in the economy. If people injured in auto and bicycle accidents had to bear the full costs (directly or through their risk pool with private insurance), they would be much more likely to consider the downside costs of their risky actions. But because the taxpayers pick up the tab for their health care, that gives the taxpayers a fiduciary interest in the risks taken by everyone. And this interest is often used to justify interventions, such as requirements that people wear bicycle helmets or seat belts.

Isn't it interesting how the advent of medicare/socialized medicine leads to other justifications for gubmnt interventions in the marketplace?

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