Unraveling the Peltzman Effect: The Significance of Agent’s Type

Grabiszewski Konrad () and Horenstein Alex ()
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Grabiszewski Konrad: HEC Paris in Qatar, Doha, Qatar
Horenstein Alex: Department of Economics, University of Miami, Coral Gables, USA

Review of Law & Economics, 2024, vol. 20, issue 1, 65-82

Abstract: The Peltzman effect posits that implementing safety measures incentivizes agents to reduce their effort to a degree where these measures become counterproductive. This paper emphasizes the significance of including the agent’s type (skills, attributes) when analyzing the effectiveness of safety measures. Using data from iRacing, an online racing simulator, we find that the detection of the Peltzman effect is solely attributed to the omitted variable bias; specifically, the omission of a variable capturing the agent’s type. Additionally, our data demonstrates that enhancing types (increasing skills) leads to safety improvements.

Keywords: Peltzman effect; omitted variable bias; moral hazard; adverse selection (search for similar items in EconPapers)
JEL-codes: C10 D80 K20 L50 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/rle-2023-0072

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