– March 12, 2019
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“You can never be too careful.” Actually, yes you can, and there is such a thing as too much safety regulation.

Consider an example. The local waterpark is trying to decide whether they should have three lifeguards on duty at their wave pool during peak hours instead of two. Should they?

In taking the “You can never be too careful” approach, the answer is an obvious yes and it might even be obscene to suggest otherwise. But if we adopt this principle as our standard, then everyone in the pool should have their own personal lifeguard. Or two. Or three. After all, you can never be too careful.

But that leads us to an absurd conclusion: any increase in wave-pool safety justifies an infinite expenditure. Hence, “You can never be too careful” is a non-starter.

To figure out whether the park should hire another lifeguard, we need to know a few things. First, we need to know what hiring another lifeguard would cost. Second, we need to know how the additional lifeguard would affect the park’s expected injury-related liability.

Something devilishly difficult to account for is that professional monitoring is a substitute for personal monitoring. If you know there’s another lifeguard on duty, your cost and benefit calculations change, too. People take more risks if they know there are lifeguards there to bail them out. An extra lifeguard makes carelessness less costly. We can expect people to be more careless.

It’s grotesque, some might think, that the park would think about the bottom line when safety is at stake. But this is where reputation and pricing come in. Places that cut corners on safety will develop a bad reputation. If they’re going to stay in business, they’ll need to cut prices. Depending on people’s preferences, a market might emerge with an array of different price-and-safety combinations, just like there are a lot of different price-and-quality combinations for basically any good or service.

Incentives Matter

Think about parental incentives, too. If you take your kids to a pool and there are no lifeguards — like at most hotel pools — you have fairly strong incentives to keep a watchful eye on your kids because you are the only one there to save them. Add a lifeguard and things change: you can spend a little more time scrolling Facebook and a little less time watching vigilantly to make sure your kids are safe.

Should we require extensive training for people who want to be lifeguards? Maybe, but it makes lifeguards more expensive.

So how should the water park decide? They compare costs and benefits, perhaps not this explicitly but at least implicitly. Suppose adding another hour of lifeguarding will increase safety enough to cut expected injury-related liability by $5 and increase pool revenues by $6 because more people will want to swim at a safer pool. Suppose a firm can hire another hour of lifeguarding for $10. In this case, the additional hour of lifeguarding is a wise buy. The park spends $10 and gets $11 worth of new revenue and lower costs. It’s a good deal.

Meanwhile, the park could eliminate all its liability and injury-related risk by simply closing up shop altogether. We don’t know whether this will increase public safety on net, of course, because it might direct people toward even more dangerous kinds of recreation.

Some readers will recoil in horror at the very idea of comparing costs to benefits before choosing a course of action. “You can’t put a price on safety,” they might say — or you might have heard them say it before.

This isn’t the case, though: every action involves comparing costs and benefits. When you go to the pool or go to the beach, you compare the benefits (exercise and fun in the sun) to the costs (the sadness and costs you would incur from different injuries adjusted for their likelihood).

We go to the beach and swim in the Gulf of Mexico even though it’s possible that we will get eaten by sharks. Just because something is possible doesn’t mean it’s likely, though — or worth more than cursory attention.

 
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Art Carden

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Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama.

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