The Individual Benefit-Cost Approach

The starting point is the acknowledgment that roadway users have some control over their own accident risks and that it is these individuals more than anyone else who have the most at stake in decisions concerning their own traffic safety. To assume that accident risk is partly endogenous is to say, for example, that drivers can affect intrinsic safety through the choice of vehicle and can affect also the probability that an accident occurs through the manner in which any chosen vehicle is operated. To assume that indmduals care the most about their own safety is to say that the survival instinct is basic. 

---

Even if travelers fully consider all benefits and costs of their actions and are well-informed a social safety problem may arise if individuals cannot process properly information about risks. The individual benefit-cost approach sees people who can evaluate the target level of safety which they have chosen. The approach sees people who have the ability to compare their subjective estimates of risk being experienced to their target level and respond to any gap between the two. The criticism of safety decisions which we should take most seriously is the challenge to individual competency. 

My first conclusion is that the individual benefit-cost approach is highly useful for understanding traffic safety behavior and for thinking about traffic safety policy. The framework is general enough to incorporate the technolo cal and risk homeostatic approaches as special cases. My second conclusion is that roadway users are sufficiently competent and their safety... 

Table 2-1 REPRESENTATIVE EVIDENCE ON THE INDIVIDUAL BENEFIT-COST APPROACH ... 

A Mathmatical Exposition of the Individual Benefit-Cost Approach... 

As stated in Chapter 2 the focus of the individual benefit-cost approach is on the roadway user s choice of a target level of safety and choice of ways of achieving that safety. For expositional purposes the approach is couched in terms of motorist behavior and striking examples. The approach applies, however, to all roadway users and includes subtle responses which may occur over extended periods of time. The approach is general in that mandated technological changes and responses based on psychophysiological arousal are incorporated. ... 

In Chapter 2, we compared the individual benefit-cost approach to the less general technological and risk homeostatic approaches and reviewed representative evidence on insurance, gambling, risk perception and safety belt use. We concluded the approach is useful for thinking about traffic safety policy. The evidence reviewed in this chapter led us to conclude that risk compensation exists in auto safety regulation and that policy benefits were overestimated. The evidence demonstrates that a general model such as ours must be used if formulation and evaluation of traffic safety policy is to be of high quality. 

Multivariate analysis of belt use isolate the separate efl ects of several individual variables at the same time. In my own work I employ an individual benefit-cost approach and multivariate probit analysis to explain voluntary seat belt use and nonuse. For a national sample of over 1,800 drivers in 19721 find that the probability of use is higher the greater are the expected net private benefits of belt use. 

In the future, economic analysis can be useful to NHTSA in building a reasonable explanation for its dedsion on passive restraints and can be useful to the Court in the determining of adequacy when there is at least nominal compliance with administrative law. The potential contribution of an individual benefit-cost approach and economic analysis to this traffic safety issue is worth considering. 

Sam Peltzman s methodological approach differs from the technological approach in that he focuses on human behavior especially driver choice. He begins with an individual benefit-cost framework to traffic safety and combines with it findings from other safety studies to construct counterfactual estimates of traffic fatality rates, hypothetical rates which would have occurred without a national traffic safety policy. We will examine his study in some detail because most of the studies are similar m crucial aspects and hence we can examine other studies more quickly. Peltzman s study is pivotal in that it was one of the first comprehensive evaluative studies. It reintroduced human behavior into traffic safety thinking. 

For most health economic evaluations, which include cost-benefit, cost-effectiveness, and cost-utility analyses, one needs to choose a base-case scenario and the perspective of evaluation. Often, the societal perspective is adopted, but it can be from an individual s or a payer s perspective. The costs or benefits are valued in two approaches ... 

Where possible, treatments should always be targeted at those individuals who are likely to benefit and be avoided in those with little chance of benefit, or in whom the risks of complications are too great compared with the expected benefit. A targeted approach based on risk is most useful for treatments with modest benefits (e.g. lipid lowering in primary prevention of vascular disease), for costly treatments with moderate overall benefits... 

---