Reducing informational asymmetry impacts choices and improves safety: An evaluation of automobile crash tests

Abstract

Vehicle crash tests mitigate an informational market failure and provide substantial benefits to consumers. Consumers cannot accurately assess vehicle safety leading automakers to provide it suboptimally. Crash tests performed by the Insurance Institute for Highway Safety represent an attempt to mitigate this market failure. This paper presents evidence that automakers responded by producing safer vehicles and that consumers increased purchases of highly rated vehicles. A novel identification strategy using the year of vehicle redesign is used to evaluate the tests' safety impact. A lower-bound estimate of program benefits is $3000 per vehicle resulting in an annual reduction of 1650 fatalities.