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Suppose the large number of bike accidents in a small town results in new legislation that requires all citizens of the town to wear specialized bike helmets when riding. These new helmets reduce the probability of head trauma by 25% during a bike accident.While the new helmets    the probability of a serious head injury resulting from a bike accident, they also incentivize cyclists to ride    safely, which could    the number of bike accidents and thus head injuries to cyclists.

Question
Suppose the large number of bike accidents in a small town results in new legislation that requires all citizens of the town to wear specialized bike helmets when riding. These new helmets reduce the probability of head trauma by 25% during a bike accident.
While the new helmets    the probability of a serious head injury resulting from a bike accident, they also incentivize cyclists to ride    safely, which could    the number of bike accidents and thus head injuries to cyclists.
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Step 1
Suppose the large number of bike accidents in a small town results in new legislation that requires all citizens of the town to wear specialized bike helmets when riding. These new helmets reduce the probability of head trauma by 25% during a bike accident.
While the new helmets  decrease the probability of a serious head injury resulting from a bike accident, they also incentivize cyclists to ride  less  safely, which could  increase the number of bike accidents and thus head injuries to cyclists.
Step 2

Explanation:

Although new helmets will greatly reduce the probability of head trauma and overall risk associated with riding bikes, they will also lead to a moral hazard. Moral hazard, in Economics, occurs when someone increases his/her exposure to risk knowing safe in the knowledge that he/she is insured or that someo...

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