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HAZARD COMPENSATION AND INCENTIVE SYSTEMS: AN ECONOMIC 152 PERSPECTIVE original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the retained, and some typographic errors may have been accidentally inserted. Please use the print version of this publication as the authoritative version for attribution. nation can actually be made after an accident and hence decide to wear seat belts. Rather than linking the penalty to the occurrence of an accident, individuals could be fined for not wearing their seat belts. Under a program recently adopted in 15 states, a person may be fined up to $50 for failure to wear a seat belt. More than 30 countries have successfully increased the use of manual seat belts through this mechanism, with between 50 and 80 percent of passengers and drivers buckling up (Graham and Henrion, 1984). The success in using penalties to induce protective behavior depends on the individual's perception of the probability of being stopped and on the magnitude of the fine. For example, despite Puerto Rico's introduction of a fine in 1974, seat belt use has not changed appreciably because there has been limited enforcement. All of the incentives mentioned above for the adoption of protective behaviors are designed to force individuals to pay attention to the potential benefits of taking care. They may be beneficial to society if, as controlled experimental evidence and field survey data suggest, individuals are poor processors of information. Not only do people misperceive probabilities, but they use simplified models of choice that frequently lead them to ignore the ex post consequences of their "risky" behavior. COMPENSATION IN SITING TECHNOLOGICAL FACILITIES The siting of new technological facilities poses policy challenges that are different from those of promoting protective activities. The residents of each potential site are likely to raise questions about the safety of the proposed facility and to require sufficient ex ante benefits to compensate for the expected negative impact on their life-styles. For example, even if a waste disposal site is considered to be acceptably safe, it may create additional traffic and noise from trucks transporting materials. There are additional equity arguments for residents demanding some type of compensation for agreeing to local siting of a hazardous facility. If all the surrounding towns in the region benefit from the facility, then they should also be willing to absorb some of the costs. A current problem facing many urban areas is where to locate a trash disposal facility that will serve the needs of the region. By maintaining the status quo, the cost of trash disposal may be considerably higher than if such a facility were established. Hence, some type of benefit-sharing mechanism may be more efficient and equitable than the status quo if it can be used both to locate a site and to share gains between winners and losers.
