Question

4. (30 pts) In 1975, economist Sam Peltzman hypothesized that mandatory seat belt laws (i.e., laws that require drivers of vehicles to wear seat belts) increased driver fatalities. The idea is that seatbelts make the driver feel safer and therefore will drive more reck- lessly. Below is graphical evidence. It shows that countries without mandatory seat belt laws (the short-dashed line labeled "no law") experienced a larger decline in auto fatalities than the group that had passed mandatory seat belt laws (the longer-dashed line labeled "law"). Develop an economic model to analyze Peltzman's hypothesis. Figure 2 The effect of seat belt legislation. Indices of road accident deaths for countries with seat belt laws and without. Indices are set to 100 in 1973-the Your model should (at a minimum) include the following: a) The hypothesis. b) The data you could use or collect to analyze the claim. c) The assumptions you might use in your model. shilt d) A discussion of whether or not the relationship is causal. You should specifically discuss if reverse causality exists. You should also discuss if any unobservable factors (that is, unobservable to you, as the researcher) influence both the en- dogenous and exogenous variables.

Answer 1

solution:

According to the question, The objective of the given analysis is to state the minimum requirement for development of economic model that analyzes Peltzman's hypothesis.

Through it shall be noted that the given question state the hypothesis - mandatory seat belt law increased driver fatalities. It also shows the graph indicating the availability of the data on which the hypothesis could be put to test.

Also in addition, the question also state the assumption - that with mandatory seat belt, the driver feel safer and hence would drive more recklessly thereby increasing driver fatalities.

Thus, one could figure out the hypothesis, data and assumption from the question itself.

Thus, at minimum, the economic model that analyze the given hypothesis should at minimum include discussion if the relationship is causal, if any un-observable factors influence endogenous & exogenous variables and whether reverse causality exists.

Therefore, the correct answer is d).