Apr 5, 2009

The Incentive Effect


In Switzerland, the law of crossing the street goes as follows:

If the pedestrian is jaywalking and gets hit, then all costs to self, driver, and car are borne by the pedestrian

If the pedestrian is using a crosswalk and gets hit, then all costs resulting from that accidents are legally borne by the driver.

Now, unlike in the US, crosswalks do not just appear at stop signs and stoplights; rather, they appear randomly in the middle of a 45 mph road, as pictured above. Because of the random nature in which crosswalks are placed, I feel that this law creates some interesting incentive effects and behavior to result.

On the positive side: this law creates very strong incentives for pedestrians to not jaywalk. For drivers, it creates incentives to be more cautious when a crosswalk is nearing. These are both

But suppose a pedestrian is approaching a crosswalk. To this pedestrian is attached a numerical value for how much disutility he would incur if hit (above any medical expenses). The pedestrian now has a choice, he can asses the situation and decide rationally whether to cross the street at that time (read: is a car coming at a speed which would be prohibitive to him crossing the street safely), or he can simply walk out on the crosswalk knowing that there is a chance he might be hit by a car. If the expected compensation above medical bills (i.e. what he would be awarded for 'pain and suffering') is greater than the disutility he incurs from getting hit, the pedestrian will take a chance and step unknowingly onto the crosswalk.

But not only this, if the expected compensation is excessively high then this creates incentives opportunistic behavior. A pedestrian might jump onto the crosswalk moments before a car approaches the it in hopes of gaining large monetary rewards from a potential, and almost certain, accident.

Now, this law is there for a reason and I'm going to venture to say that opportunistic behavior does not run as rampant in Europe as in the US. If that's the case, then this law would produce the correct incentive effects.


Disclaimer: I have not read the Swiss legal code; this is just the rule that was imparted on me by locals while living in the south of Switzerland.

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