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 105 100 95 90 85 no law 1970 1971 t972 ข973 1974 ข975 1976 ข977 1978 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 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

According to the problem, our objective is to estimate the impact of seat belt use on driver fatality.

Therefore, the hypothesis can be constructed as whether the effect of Seat belt use on driver fatality is positive or not.

Assuming the Driver fatality is also affected by some exogenous factors such as fuel consumption, percentage of young males, unemployment rate and police present, we can formulate the economic model as

$F_{it}= \beta _{0} + \beta _{1}X_{it} + \beta _{2}Y_{it} +V_{it}.$........................... (1)

where, i = 1,2..... are the number of countries

t denotes the specified years

F_it is the number of auto fatalities for i^th country in t tear.

X_it is the average percentage of drivers who obey the mandatory sit belt laws.

Y_it denotes all other exogenous variables

V_it is the error term.

For our analysis we have to collect the data from different country for a specific time period on

(i) number of driver fatality

(ii) Average number of driver who obey the law of using sit belt.

(iii) minimum drinking age, % of young driver, average fuel consumption which are treated as exogenous variables.

we assume a linear relationship exist between the variables and finally apply Ordinary least square method in order to estimate the the parameters from equation (1). the value of $\beta _{1}$ indicates the effect of seat belt usage law on driver fatality.

Finally we will find whether the value of  $\beta _{1}$ is statistically significant or not.