An empirical examination of moral hazard in the vehicle inspection market

Research output: Contribution to journalArticle

59 Scopus citations

Abstract

Moral hazard arises in "diagnosis-cure" markets such as auto repair and health care when sellers have an incentive to misrepresent a buyer's condition in order to increase demand for the treatments they supply. This article examines the market for California vehicle emission inspections. Using transaction-level data, I investigate whether the market provides incentives that lead inspectors to help vehicles pass and how the behavior of inspectors varies with their firm's organizational characteristics. I find that consumers are generally able to provide firms and inspectors incentives to help them pass, and I find cross-firm differences that are consistent with agency theory.

Original languageEnglish (US)
Pages (from-to)406-426
Number of pages21
JournalRAND Journal of Economics
Volume29
Issue number2
DOIs
StatePublished - Jan 1 1998

ASJC Scopus subject areas

  • Economics and Econometrics

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