Do Behavioral Responses Offset Improved Vehicle Safety? New Estimates Exploiting Changes in Perceived Vehicle Safety

An important consideration when evaluating the impact of policies to improve automotive safety is the behavioral response of market participants to the new policy environment.  The underlying theory suggesting that consumer responses will “offset” some or all of the potential benefits of automotive safety regulation was developed by Peltzman in the 1970s.  This offset hypothesis has been difficult to test empirically due to selection issues: safer vehicles are likely to attract a different risk mix of drivers.  Thus, if safer cars are driven in a less safe manner, this could be due to a behavioral offset, but it could also be due to an adverse selection of risky drivers choosing to buy safer vehicles.  An ideal test of the offset hypothesis would be to investigate whether the same drivers change their driving habits as a function of the safety of the vehicle they are driving, but the required data are not readily available.  This research contributes to the empirical literature by testing whether drivers change their driving behavior in response to a perceived change in vehicle safety.  Two sources of potential changes in perceived safety are exploited.  First, the Insurance Institute for Highway Safety (IIHS) performs crash tests on vehicles and publicizes its ratings.  The ratings are sometimes retrospectively applied to earlier model years of the same vehicle that are structurally comparable to the tested vehicle.  The ratings were thus unavailable at the time of vehicle purchase, but become available after purchase and may change the vehicle owners’ perception of the safety of the vehicle.  The second source of changes in perceived safety exploits the negative publicity accompanying safety-related automobile recalls and widely publicized safety problems attributed to particular makes and models.  This negative publicity could cause existing vehicle owners to perceive their cars as less safe.  The offset hypothesis suggests that changes in perceived safety from these two sources would lead to a change in driving behavior.  The hypothesis is tested by investigating whether accident rates and severity for particular vehicle models change after an event likely to impact perceived safety.