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Auto Safety Regulation: An Analysis of Market Failure

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  • Richard J. Arnould
  • Henry Grabowski
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    Abstract

    Although a number of studies have shown seat belts to be highly effective in the prevention of death and injuries, they are used by less than 20% of automobile occupants. This low utilization has led to the present regulation that beginning in 1982 new cars must be equipped with a passive restraint system (i.e., either automatic seat belts or air cushions). This paper examines the potential sources of market failure in this situation (information imperfections and market externalities) and performs a cost-benefit analysis of the mandatory passive restraint regulation. A major finding is very high benefit-cost ratios from the substitution of passive for manual seat belts but much more mixed results in the case of air cushions.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal Bell Journal of Economics.

    Volume (Year): 12 (1981)
    Issue (Month): 1 (Spring)
    Pages: 27-48

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    Handle: RePEc:rje:bellje:v:12:y:1981:i:spring:p:27-48

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    Cited by:
    1. Viscusi, W Kip, 1993. "The Value of Risks to Life and Health," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1912-46, December.
    2. Justina A.V. Fischer, 2005. "The Impact of Direct Democracy on Crime: Is the Median Voter Boundedly Rational?," University of St. Gallen Department of Economics working paper series 2005 2005-14, Department of Economics, University of St. Gallen.
    3. Christine Jolls, 2007. "Behavioral Law and Economics," NBER Working Papers 12879, National Bureau of Economic Research, Inc.

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