Do vehicle recalls reduce the number of accidents? The case of the U.S. car market

Abstract

AbstractThe number of automobile recalls in the U.S. has increased sharply in the last two decades, and the numbers of units involved are often counted in the millions. In 2010 alone, over 20 million vehicles were recalled in the United States, and the massive recalls of full model lines by Toyota have brought this issue to the front pages around the country and the world. However, there is no quantitative evidence of the effect of recalls on safety. Without that evidence, the government and insurance companies have been reluctant to request and use more detailed recall information to increase correction rates, and regulators have not studied the possible link between the growing number of recalls and the risk of life for consumers. In this paper we empirically quantify the effect of vehicle recalls on safety using repeated cross‐sections on accidents of individual drivers and aggregate vehicle recall data to construct synthetic panel data on individual drivers of a particular vehicle model. We estimate the effect of recalls on the number of accidents and find that a 10 percent increase in the recall rate of a particular model reduces the accidents of that model by between 0.78 percent and 1.6 percent when using the full sample of accidents in our data. We also find that recalls classified as “hazardous” are more effective in reducing accidents, and the recall effect is especially strong when we restrict attention to accidents that lead to personal injuries and only include vehicles more likely to be at fault for the accident, but much less so for accidents that only lead to property damage. We also find that vehicle models with recalls with higher correction rates have on average fewer accidents in the years following a recall, which indicates the importance of the role of drivers' behavior regarding recalls on safety. Our findings suggest that policymakers should consider, for example, policies to allow insurance companies to take into account recall correction behavior when pricing auto insurance, which could be made possible through regulatory changes by the U.S. government, and should revisit the complex trade‐offs between pre‐ and post‐market regulation in this important industry. © 2011 by the Association for Public Policy Analysis and Management.