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QUESTION:

5. Changes in incentives

Suppose that a large influx of electric scooter rentals in a crowded downtown area results in a lot of new riders on the streets. For their safety, the mayor of the city decides to enact a law requiring helmets when renting scooters. These new helmets reportedly decrease the probability of injury by 29% in the event of a scooter crash.
While the new helmets    the probability of injury resulting from a scooter accident, they also incentivize individuals to ride    recklessly, which could    the number of scooter collisions and therefore injuries to renters.

ANSWER:

While the new helmetsdecrease  Correct the probability of injury resulting from a scooter accident, they also incentivize individuals to ridemore  Correct recklessly, which couldincrease  Correct the number of scooter collisions and therefore injuries to renters.
Points:
1 / 1
Close Explanation
Explanation:
Although the new helmets may have the direct effect of reducing the probability of head trauma during a bike accident, this reduction in the risk of injury can also change the incentives of scooter renters. In particular, this change may incentivize riders to alter their behavior when scootering.
A rational scooter renter compares the costs and benefits of riding safely on the road. For instance, if scooter renters rode with no helmets, the marginal benefit of riding safely and obeying traffic laws would be high, giving riders an incentive to scooter more carefully to avoid accidents and the risks of head trauma.
The new helmets, however, change these incentives by altering the cost-benefit analysis that a rational scooter renter would undertake. If the helmets reduce head trauma during a scooter accident, the marginal benefits of riding safely are reduced, giving riders an incentive to operate the scooter less cautiously (or more recklessly). This change in behavior may actually lead to a larger number of scooter accidents and injuries, as there may now be a larger number of reckless scooter renters on the road.

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