Product-Consumer Substitution and Safety Regulation
Konrad Grabiszewski and
Alex Horenstein ()
Additional contact information
Konrad Grabiszewski: University of Miami
No 2017-01, Working Papers from University of Miami, Department of Economics
We develop a theory of safety regulation where product safety and consumer skills are negatively correlated. This correlation, which we call the product-consumer substitution, is driven by demand and supply: consumers with lower skill choose safer products, while sellers offer less safe products only to consumers with high skills. We derive two predictions that are inconsistent with the standard theory: (1) an improvement in safety (regular effect of regulation) can occur in tandem with the standard offsetting behavior, and (2) a deterioration of safety (Peltzman effect) can occur without the standard offsetting behavior. As policy implication, we propose to use simultaneously product and consumer regulation. We validate our theory using a dataset with more than 2 million observations obtained from iRacing, an online racing simulation. Our dataset contains objective measures of product safety and consumer skills which makes it unique among the datasets used in the safety regulation literature.
Keywords: safety regulation; adverse selection; moral hazard Publication Status: Under Review (search for similar items in EconPapers)
JEL-codes: D8 K2 L5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://bus.miami.edu/_assets/files/repec/WP2017-01.pdf First version, 2017 (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:mia:wpaper:2017-01
Access Statistics for this paper
More papers in Working Papers from University of Miami, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher Parmeter ().