Auto Safety Regulation: An Analysis of Market Failure
Volume: Volume 12, No. 1
Issue: Spring 1981
Pages: pp. 27-48
Authors: Richard J. Arnould and Henry Grabowski
Title: Auto Safety Regulation: An Analysis of Market Failure
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.
JEL Classification
Industry Studies Manufacturing Transportation Equipment (6314)
Economics of Health including medical subsidy programs (9130)
Consumer Protection (9213)