Are Coarse Ratings Fine? Applications to Crashworthiness Ratings

Siqi Liu (), Bhoomija Ranjan () and Benjamin Shiller
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Siqi Liu: Brandeis University
Bhoomija Ranjan: Monash Univeristy

No 132, Working Papers from Brandeis School of Business and Economics

Abstract: Many rating organizations intentionally coarsen ratings before public presentation, for example by using a discrete badge rather than a continuous rating. We investigate the impact of coarsening empirically in the context of automobile crashworthiness ratings. Specifically, we construct a univariate continuous crashworthiness rating from crash test measurements and observed fatality rates. We then estimate a random coeficient model of vehicle demand under status quo coarse ratings and simulate outcomes under counterfactual continuous ratings. We find that consumers alter vehicle choices, thereby reducing fatalities by 7.4%, which implies 1,850 fewer U.S. fatalities annually. Finally, we explore whether incentives to produce crashworthy vehicles are reduced enough to offset benefits of finer information. We conclude that a continuous rating format would reduce fatalities.

Pages: 55 pages
Date: 2020-12
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Citations: View citations in EconPapers (3)

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