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Auto Safety Regulation: An Analysis of Market Failure

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  • Richard J. Arnould
  • Henry Grabowski

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.

Suggested Citation

  • Richard J. Arnould & Henry Grabowski, 1981. "Auto Safety Regulation: An Analysis of Market Failure," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 27-48, Spring.
    • 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 1912-1946, December.
    2. Christine Jolls, 2007. "Employment Law and the Labor Market," NBER Working Papers 13230, National Bureau of Economic Research, Inc.
    3. Aven, Terje & Renn, Ortwin, 2018. "Improving government policy on risk: Eight key principles," Reliability Engineering and System Safety, Elsevier, vol. 176(C), pages 230-241.
    4. Boyer, Marcel & Dionne, Georges, 1984. "Sécurité routière : efficacité, subvention et réglementation," L'Actualité Economique, Société Canadienne de Science Economique, vol. 60(2), pages 200-222, juin.
    5. Kimberly M. Thompson & Maria Segui‐Gomez & John D. Graham, 2002. "Validating Benefit and Cost Estimates: The Case of Airbag Regulation," Risk Analysis, John Wiley & Sons, vol. 22(4), pages 803-811, August.
    6. Jahn K. Hakes & W. Kip Viscusi, 2007. "Automobile Seatbelt Usage and the Value of Statistical Life," Southern Economic Journal, John Wiley & Sons, vol. 73(3), pages 659-676, January.
    7. 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.
    8. Max Harleman & Pramod Manohar & Elaine L. Hill, 2022. "Negotiations of Oil and Gas Auxiliary Lease Clauses: Evidence from Pennsylvania’s Marcellus Shale," NBER Working Papers 30806, National Bureau of Economic Research, Inc.
    9. Arjan F. Kirkels & Jeroen Bleker & Henny A. Romijn, 2022. "Ready for the Road? A Socio-Technical Investigation of Fire Safety Improvement Options for Lithium-Ion Traction Batteries," Energies, MDPI, vol. 15(9), pages 1-22, May.
    10. Berlemann, Michael & Matthes, Andreas, 2014. "Positive externalities from active car safety systems," Journal of Policy Modeling, Elsevier, vol. 36(2), pages 313-329.
    11. Christine Jolls, 2007. "Behavioral Law and Economics," NBER Working Papers 12879, National Bureau of Economic Research, Inc.
    12. Ovaere, Marten & Proost, Stef, 2022. "Cost-effective reduction of fossil energy use in the European transport sector: An assessment of the Fit for 55 Package," Energy Policy, Elsevier, vol. 168(C).
    13. W. Kip Viscusi & Richard J. Zeckhauser, 1996. "Hazard Communication: Warnings and Risk," The ANNALS of the American Academy of Political and Social Science, , vol. 545(1), pages 106-115, May.
    14. Giles, Margaret J., 2004. "Driver speed compliance in Western Australia: a multivariate analysis," Transport Policy, Elsevier, vol. 11(3), pages 227-235, July.
    15. W. Kip Viscusi & Gerald O. Cavallo, 1994. "The Effect of Product Safety Regulation on Safety Precautions," Risk Analysis, John Wiley & Sons, vol. 14(6), pages 917-930, December.
    16. Alan Woodfield, 1996. "Car Seat-Belt Regulations, Offsetting Behaviour, and Liability Rules," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 3(4), pages 459-470.
    17. Till Grüne-Yanoff & Holger Rosencrantz, 2011. "Beneficial safety decreases," Theory and Decision, Springer, vol. 70(2), pages 195-213, February.

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