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Auto Safety Regulation: An Analysis of Market Failure

  • Richard J. Arnould
  • Henry Grabowski
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    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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    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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