I’ve just read a great post about vehicle size and the probability of getting killed, go The Economist. It says that, although you are less likely to die if you are in an accident and you are in an SUV, you are more likely to be in an accident if you are in an SUV, and therefore we can’t just say that having a bigger car will make us safer. Now the reason I think SUV’s get into more accidents is that people feel safer in SUV’s and so drive more aggressively.
Let us now completely ignore this point and look at a slightly different issue. Say you were certain that at some point you were going to be in an accident. In this case, all other things equal, you want to choose a car that gives you a greater probability of living. As a result, you choose an SUV. Furthermore, if everyone in society felt the same sort of way, they would buy SUV’s as well.
However, your probability of living also depends on the type of car the person you crash into is driving. If you have an SUV and they have a Honda Civic, you will destroy them, your probability of living will be high and they will be in trouble. If they also have an SUV, then you are both likely to get munched as you both have big cars. Now what happens in the hypothetical case when you and the other person have Honda Civics? You will be worse off than if you were in an SUV, but you will be better off than if they were in an SUV. The interesting question is, how does this compare to the case when you are both driving SUV’s?
If the probability of living is higher when you are both driving Honda Civics than in the case when you are both driving SUV’s we have a prisoner’s dilemma. Both you and the other crash victim would be better off if you were both in Honda Civics than if you were both in SUV’s. However, incentives convince the individual to buy an SUV.
If the probability of dieing in a Civic vs Civic crash are lower than an SUV vs SUV crash, then we have another reason (beyond the moral hazard aggressive driving reason and the environmental reason) for why the government should regulate the size of vehicles it imports.