Information Transmission and Vehicle Recalls: The Role and Regulation of Recall Notification Letter
Using data on correction rates for vehicle recalls in the United States from 2007 to 2010, we investigate information transmission from manufacturers to owners regarding the defects of recalled vehicles. We pay special attention to the role of the language manufacturers use to convey each recall's seriousness in the letters they send to owners to explain the nature of the defects in their vehicles, and the possible consequences if the defects are not fixed. We find that recalls linked to riskier defects, defined by the type of equipment affected in the vehicles, are associated with higher correction rates. Interestingly, the content of recall notification letters plays an important role in increasing correction rates because the letters convey information to owners above and beyond baseline information about which part of their vehicles can present problems. We also find that, in a number of cases, the language that manufacturers use to explain the risks to owners are worryingly milder than the descriptions the National Highway Traffic Safety Administration (NHTSA) use, resulting in significantly lower correction rates. We conclude that information transmission to owners regarding recalls should be more clearly regulated since the language affects drivers' likelihood of taking their cars to be fixed. We advocate that the NHTSA return to the pre-2001 practice of assigning hazard levels to all recalls, and that the agency consider making sure manufacturers clearly communicate recall rating information to vehicle owners. Our results indicate that these practices would result in higher correction rates, remove faulty cars from the roads, and, consequently, save lives.
(This abstract was borrowed from another version of this item.)
|Date of creation:||Oct 2013|
|Contact details of provider:|| Postal: Stony Brook, NY 11794-4384|
Web page: http://www.stonybrook.edu/commcms/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Crafton, Steven M & Hoffer, George E & Reilly, Robert J, 1981. "Testing the Impact of Recalls on the Demand for Automobiles," Economic Inquiry, Western Economic Association International, vol. 19(4), pages 694-703, October.
- Jarrell, Gregg & Peltzman, Sam, 1985.
"The Impact of Product Recalls on the Wealth of Sellers,"
Journal of Political Economy,
University of Chicago Press, vol. 93(3), pages 512-536, June.
- Gregg A. Jarrell & Sam Peltzman, 1984. "The Impact of Product Recalls on the Wealth of Sellers," University of Chicago - George G. Stigler Center for Study of Economy and State 33, Chicago - Center for Study of Economy and State.
- Yong‐Kyun Bae & Hugo Benítez‐Silva, 2011. "Do vehicle recalls reduce the number of accidents? The case of the U.S. car market," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(4), pages 821-862, 09.
- Hugo Benitez-Silva & Yong-Kyun Bae, 2005. "Do Vehicle Recalls Reduce the Number of Accidents? The Case of the U.S. Car Market," Department of Economics Working Papers 05-06, Stony Brook University, Department of Economics.
- Hartman, Raymond S, 1987. "Product Quality and Market Efficiency: The Effect of Product Recalls on Resale Prices and Firm Valuation," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 367-372, May.
- Rupp, Nicholas G & Taylor, Curtis R, 2002. "Who Initiates Recalls and Who Cares? Evidence from the Automobile Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 123-149, June.
- Yong-Kyun Bae & Hugo Benítez-Silva, 2013. "The Effects Of Automobile Recalls On The Severity Of Accidents," Economic Inquiry, Western Economic Association International, vol. 51(2), pages 1232-1250, 04.
- Hugo Benitez-Silva & Yong-Kyun Bae, 2010. "The Effects of Automobile Recalls on the Severity of Accidents," Department of Economics Working Papers 10-03, Stony Brook University, Department of Economics.
- Marino, Anthony M, 1997. "A Model of Product Recalls with Asymmetric Information," Journal of Regulatory Economics, Springer, vol. 12(3), pages 245-265, November. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nys:sunysb:13-02. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.