An empirical examination of moral hazard in the vehicle inspection market

Thomas N. Hubbard*

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingChapter


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)
Title of host publicationControlling Automobile Air Pollution
PublisherTaylor and Francis
Number of pages21
ISBN (Electronic)9781351161077
ISBN (Print)9780815388227
StatePublished - Jan 1 2018

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)
  • Environmental Science(all)


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