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Auto Safety Regulation: An Analysis of Market Failure

Richard J. Arnould and Henry Grabowski
The Bell Journal of Economics
Vol. 12, No. 1 (Spring, 1981), pp. 27-48
Published by: RAND Corporation
DOI: 10.2307/3003507
Stable URL: http://www.jstor.org/stable/3003507
Page Count: 22
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Auto Safety Regulation: An Analysis of Market Failure
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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.

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