An interesting article at MSNBC on personal locator beacons provides an interesting example of an economic concept in action. The existence of personal locator beacons lowers the cost to novices of engaging in riskier hiking adventures. This leads to greater risk-taking, especially when society bears some of the cost of the increased risk. We see many similar examples of this concept in action:
- The existence of deposit insurance, combined with banking deregulation under Reagan (and later G.W. Bush) encouraged people to place more deposits in those institutions that offered the highest returns, without regard to default risk (since they are insured against that).
- Bailouts of financial institutions that have engaged in especially shortsighted and risky behavior may reduce the incentive for other firms to engage in more prudent behavior.
- The existence of medical treatments for some of the health consequences of obesity have at least partly reduced the incentives for individuals to watch their diet and exercise regularly.
Hmmm… Another analogy: Since the introduction of “Child Proof ” caps on medicine containers more accidental poisonings occur due to the careless placement of medicine bottles within reach of children. Before the “Safer” packaging, people were individually responsible to keep the bottles away from children! Many apparently are now lulled into a false sense of security, since someone else has taken care of the situation!