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Competition Makes Inspectors More Lenient: Evidence from the Motor Vehicle Inspection Market

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We examine the impact of competition on firms' leniency towards their customers in a heavily regulated market, which is consciously designed to mitigate incentives to deviate from the regulation. Using a panel data set representing 22.5 million periodic vehicle roadworthiness tests during the period 2010-2015, we show that inspection stations operating in more competitive markets are more lenient to their customers than stations operating in less competitive markets. We present both fixed effects and instrumental variable estimates of the effect of competition on firms' incentive to be lenient to their customers.

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  • Habte, Osmis & Holm, Håkan J., 2017. "Competition Makes Inspectors More Lenient: Evidence from the Motor Vehicle Inspection Market," Working Papers 2017:19, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2017_019
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    Cited by:

    1. Janssen, Aljoscha & Zhang, Xuan, 2020. "Retail Pharmacies and Drug Diversion during the Opioid Epidemic," Working Paper Series 1373, Research Institute of Industrial Economics.
    2. Samahita, Margaret & Holm, Håkan J., 2020. "Mining for Mood Effect in the Field," Working Papers 2020:2, Lund University, Department of Economics.
    3. Samahita, Margaret & Holm, Håkan J., 2023. "No mood effects in the field: The case of car inspections," Journal of Economic Psychology, Elsevier, vol. 96(C).

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    More about this item

    Keywords

    leniency; pass rate; inspection behavior; competition; deregulation; inspection market;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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