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Tuesday, February 10, 2015

Peltzman Revisited: Why Don't Downhill Skiers Use Airbags?

The NY Times reports the puzzle that competitive downhill skiers such as Bode Miller could protect themselves if they adopt a new "air bag" but few are using them.  One theory is that these protective devices are heavy and uncomfortable and thus lower the probability of winning any given race.  A Peltzman argument would counter that armed with such an "air bag", the skier could be more aggressive because she is protected against ugly crash scenarios.   Unlike the case of driving, this induced risk taking does not impose a social externality because the skier is the only one skiing at a point in time. All of the benefits and the costs of the risk taking are internalized by the skier.  Human capital theory would also posit that if the skier seeks to maximize the expected PDV of her earnings racing then she should take steps to lower injury risk.  The NY Times hints at a theory of conformity; that it isn't cool to be the first one wearing this armor but is this a correct theory?  Are skiers under-estimating the risks of an accident or under-estimating the expected benefits of being more aggressive as they ski?