Since passage of the national traffic and motor vehicle safety act, the Federal Government has played an active role in regulating vehicle safety. In addition to mandating that vehicle manufacturers equip new vehicles with a variety of accident prevention and crash protection devices, the Federal Government requires manufacturers to report any defects that may develop. To date, much of the research in this area has concentrated on the highway safety effects of accident prevention and crash protection regulations. On the other hand, there has been relatively little research on government recall campaigns and the effect these may have upon the demand for new vehicles. Although it is known that well-publicised recalls of a major defect (e.g., The gas tank problem in the ford pinto or the recent accelerator problem in the Audi 5000) will have an immediate effect on current demand for the recalled vehicle, there are other questions whose answers are less clear. Will such campaigns affect contemporaneous demand only or will there be lingering effects on future demand? Do recall campaigns of a less serious nature have any effect upon new vehicle purchase decisions? The purpose of this paper is to develop and estimate an economic model that addresses the short-term effects ofrecall campaigns upon consumer behaviour.
Abstract