The effectiveness of vehicle safety inspections: an analysis using panel data.

• Author: Merrell, David

1. Introduction

   Economists have extensively analyzed the efficacy of policies intended to improve traffic safety. These policies include mandatory seat belt use, the speed limit, motorcycle helmet laws, the drinking age, and vehicle safety inspections. In this paper, we present new evidence on the effectiveness of state vehicle inspections. Since vehicle maintenance can confer an external benefit to other drivers by reducing the accident rate, individuals may voluntarily provide less than the efficient level of maintenance. Safety inspections attempt to correct the externality by ensuring that vehicles meet a specified maintenance standard. To examine the effect of inspection laws on fatality and injury rates, we used a panel of the 50 states for the years 1981-1993. Our empirical approach paid particular attention to the problem of omitted variables. Many factors causing driving conditions to vary across states can be difficult to quantify or may escape the attention of the researcher. The panel allowed us to control for these state-specific factors by estimating a fixed-effects model. In contrast, previous studies of safety inspections have not allowed for state-specific effects and are therefore vulnerable to omitted variables bias.

   Contrary to a number of existing studies, our results indicated that inspections fail to significantly reduce fatality rates. We also went beyond the typical approach by estimating the effect of inspections on nonfatal injuries. Again, we found inspections ineffective. These results held whether the models used variables in their levels or in first differences. While our main empirical innovations pertain to inspections, our results also provide evidence of the effects of other policy variables such as speed limits and seat belt laws. We also found support for the Peltzman (1975) hypothesis that income and wealth increase accidents by stimulating driving "intensity" (heedlessness and speed).

   Our estimates demonstrate the importance of modeling state-specific effects. The estimated fixed effects differ very significantly from zero and can affect inferences regarding the effectiveness of inspections. Specifically, if our empirical model omits fixed effects in the levels, the estimates attribute a significant reduction in fatalities to systematic inspections; this result disappears, however, if the model includes fixed effects.

   This paper is organized as follows. Section 2 presents the econometric model. It also includes a brief history of state inspection programs and describes previous studies of safety inspections. Section 3 presents our results, and section 4 provides some estimates of the cost of annual inspections and discusses some implications of our research.

2. Modeling State Safety Inspection Programs

   Two types of inspection programs exist: mandatory annual inspections and spot inspections, where law enforcement officers can at their discretion stop and inspect a vehicle. Annual inspections take place at a state-licensed repair shop, usually for a fee set by the state. In addition to the fee, drivers bear a time cost of inspection that includes queuing and the inspection itself (and reinspection if the vehicle fails). The inspection typically requires safety features such as headlights, turn signals, horn, and brakes to meet designated standards.(1)

   Many states initiated spot or annual inspections after Congress in 1966 mandated withholding federal highway funds from states failing to adopt vehicle inspection programs. In 1977, Congress eliminated the threat to withhold highway funds, and several states subsequently eliminated inspection requirements.(2) Table 1 summarizes the changes in state inspection regimes during the period covered by our investigation. The number of annual inspection programs declined from 30 in 1980 to 23 in 1993. States made 20 shifts of inspection regime during the period; 15 different states experienced some form of regime shift. The variation in inspection regimes over time provided the basis for our econometric tests, described below.

   Previous studies of the effectiveness of safety inspections have produced conflicting results. In fact, sorting these studies into categories corresponding to the use of time-series, cross-sectional, or pooled data shows that conflicting results exist within each category. Using cross-sectional data on the 50 states, Loeb (1985, 1988) found inspections effective while Crain (1980) did not. Keeler (1994) used county-level data and found inspections effective in 1970 but not in 1980. Loeb and Gilad (1984) found evidence that inspections were effective using time-series data for New Jersey. In national-level time series, Garbacz and Kelly (1987), Garbacz (1990), and Fowles and Loeb (1995) reported that inspections did not lower the fatality rate, whereas Loeb (1990) found inspections effective. Using pooled data, Leigh (1994) generated evidence against the effectiveness of inspections; Saffer and Grossman (1987) concluded that inspections reduced the fatality rate among young drivers.

   Table 1. State Auto Inspection Programs, 1980-1993 Inspections States Continuous Annual Inspection Arkansas, Delaware, Hawaii, Louisiana, Maine, Massachusetts, Mississippi, Missouri, New Hampshire, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Vermont, Virginia, and West Virginia Continuous Spot Inspection Alaska, Iowa, Michigan, Minnesota, North Dakota, Oregon, and Wisconsin No Inspections Performed Arizona, Idaho, Illinois, Kentucky, Montana, New Mexico, and Wyoming States Altering Inspection Regime Alabama: add spot (1982); California: drop spot (1981); Colorado: drop annual (1982); Connecticut: add annual (1982); Florida: drop annual (1982); Georgia: drop annual (1982); Indiana: drop annual (1981), add annual (1982), drop annual (1984); Kansas: drop annual (1982), add spot (1984); Maryland: drop annual (1982); Nebraska: drop annual (1982); Nevada: add annual (1981), drop annual (1982); Ohio; drop spot (1989); South Dakota: drop annual (1981); Tennessee: add spot (1981), drop spot (1982); Washington: drop spot (1987) Our empirical model takes the form

   [f.sub.it] = [[Alpha].sub.i] + [Beta][prime][multiplied by][x.sub.it] + [[Epsilon].sub.it], (1)

   where [f.sub.it] is the log of a casualty total in state i during year t and [[Epsilon].sub.it] is a white noise disturbance. The regressor matrix X consists of variables described below that may affect the accident rate. Our approach featured several advantages relative to prior studies of safety inspections. Most importantly, the panel enabled us to use dummy variables to estimate state-specific shifts in the fatalities intercept, [[Alpha].sub.i]. We wanted to allow for state-specific effects because the explanatory variables in X might not have captured all the factors influencing casualties across states. Many factors such as geography or policing effort can vary across states in a nonquantifiable manner. Tests using national-level time-series or cross-sectional data cannot allow for such state-specific effects.(3) To obtain consistent estimates, these studies require state-specific effects to be zero or at least to be uncorrelated with the explanatory variables. Our estimates indicate that the state-specific effects are significantly nonzero, and Hausman tests imply that they are not uncorrelated with the explanatory variables. Under these circumstances, a fixed-effects model is appropriate.(4) The fixed-effects model uses the variation in inspection regimes over time to separate the effects of inspection from those of factors varying only across states. None of the existing studies on the effectiveness of safety inspections have estimated a fixed-effects...