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Are Coarse Ratings Fine? Applications to Crashworthiness Ratings

Author

Listed:
  • Siqi Liu

    () (Brandeis University)

  • Bhoomija Ranjan

    () (Monash Univeristy)

  • Benjamin Reed Shiller

    () (Brandeis University)

Abstract

Many rating organizations intentionally coarsen ratings before public presentation, for example by using a discrete badge rather than a continuous rating. We investi-gate the impact of coarsening empirically in the context of automobile crashworthiness ratings. Speci˝cally, we construct a univariate continuous crashworthiness rating from crash test measurements and observed fatality rates. We then estimate a random coef-˝cient model of vehicle demand under status quo coarse ratings and simulate outcomes under counterfactual continuous ratings. We ˝nd that consumers alter vehicle choices, thereby reducing fatalities by 7.4%, which implies 1,850 fewer U.S. fatalities annually. Finally, we explore whether incentives to produce crashworthy vehicles are reduced enough to offset benefits of finer information. We conclude that a continuous rating format would reduce fatalities.

Suggested Citation

  • Siqi Liu & Bhoomija Ranjan & Benjamin Reed Shiller, 2020. "Are Coarse Ratings Fine? Applications to Crashworthiness Ratings," Working Papers 132, Brandeis University, Department of Economics and International Businesss School.
  • Handle: RePEc:brd:wpaper:132
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