Division of Labour: Levitt vs. Levitt & Dubner

December 13, 2006

Levitt vs. Levitt & Dubner

On the Freakonmics blog, Steve Levitt writes:

Whatever small offsetting impact that more reckless driving due to seat belts may have, it is trivial compared to the benefits of wearing a seat belt. Articles like the one in Time Magazine encourage people to come to completely the wrong conclusion on this question.

Here (via Lex Nex) is part of Levitt & Dubner's Feb. 19 "Freakonomics" column:

Although it is wildly reductive to put it this way, a Nascar driver has two main goals: to win a race and to not be killed. Nascar's recent safety measures seem to have considerably reduced the likelihood of being killed. So could it be that drivers are now willing to be more reckless? When crashing is made less costly, an economist would fully expect drivers to be crashing like crazy; could it be that Nascar's safety measures have led to fewer deaths but more crashes?

A quick look at the data seems to suggest so. In last year's Nextel Cup races, there were 345 cars involved in crashes, an all-time high. But, as Matt Kenseth points out, the two cup races held during 2005 at Lowe's Motor Speedway near Charlotte, N.C., were unusually brutal -- the track had a new surface that caused numerous flat tires -- and may have aberrationally affected the crash count. ''In Charlotte, pretty much everybody wrecked in both races,'' he says. ''It was the fault of the track and the tires -- but if you take those races out of it, crashes are probably about even.'' And there were actually fewer crashes in 2004 than there were in 2003. While the number of overall crashes are up a bit since Earnhardt's death (Nascar will not release annual crash counts, but one official did confirm this trend), they haven't increased nearly as much as an economist might have predicted based on how Nascar's safety measures would seem to have shifted a driver's incentives.

Maybe that's because there are other, perhaps stronger, incentives at play. The first is that Nascar has increased its penalties for reckless driving, not only fining drivers but also subtracting points in their race for the cup championship. The other lies in how the cup championship itself has been restructured. Two years ago, Nascar gave its 36-race season a playoff format. In order to qualify for the playoffs -- and have a chance at winning the $6 million-plus cup championship -- a driver must be among the points leaders after the first 26 races of the season. While a couple of 20th-place finishes during those first 26 races won't necessary ruin your championship hopes (each race fields a slate of 43 cars), a few bad crashes might.

So Nascar has reduced a danger incentive but imposed a financial incentive, thus maintaining the delicate and masterful balance it has cultivated: it has enough crashes to satisfy its fans but not too many to destroy the sport -- or its drivers.

Maybe there's a significant difference (e.g., large dollar prizes) between NACSAR and ordinary driving, but it seems that Levitt is of two minds on the Peltzman effect. (Or maybe Dubner gives it more credence than Levitt does.) Levitt & Dubner talk of NASCAR achieving a "masterful balance" by imposing a financial disincentive to wreckless driving. Presumably such a disincentive would not be necessary if the Peltzman effect was (as Levitt writes on the blog) "not at all important in reality."

BTW, here's Josh's post on the Feb 19 "Freakonomics" column; his post includes a link to the Sobel & Nesbit NASCAR paper finding evidence of offsetting behavior.

Posted by E. Frank Stephenson at 04:21 PM in Economics