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Recently the National Highway Traffic Administration changed its policy concerning the public announcement of safety‐related automotive recalls. This paper examines whether consumers continue to use recalls as an input in their decision to purchase an automobile. It was found that over the 1977‐81 period, severe recalls adversely affected the demand for the model recalled, while benefiting substitutes of other manufacturers.

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This paper assesses the impact of recall‐specific variables on owner response rates to automotive safety recall campaigns under the National Traffic and Motor Vehicle Safety Act of 1966. Using a multiple regression framework, the paper finds that owner response rates have been significantly higher for owners of American vehicles as compared to European and Japanese vehicles, for owners of newer model vehicles as compared to older ones, and for owners of vehicles with severe safety‐related defects as compared to vehicles with lesser problems. The paper concludes with the suggestion that, for vehicles with characteristically lower owner response rates, the issuance of multiple recall notices or the coupling of periodic safety inspections with recall compliance may be advisable.

We thank Glenn Mercer of McKinsey and Company for providing us with access to the J.D. Power and Associates database.

Earlier studies reported that an insurance industry index of personal-injury claims rose after automobiles adopted driver's side airbags and that drivers of airbag-equipped vehicles were more likely to be at fault in fatal multivehicle accidents. These findings can be explained by the offsetting behavior hypothesis or by at-risk drivers systematically selecting vehicles with airbags (i.e., adverse recruitment). We test for offsetting behavior and adverse recruitment after airbag adoption using a database containing information on fatal accidents including information on drivers' previous records and drivers' actions that contributed to the occurrence of the accident. Further, we reexamine the personal injury claims index data for newly airbag-equipped vehicles and show that the rise in the index after airbag adoption may be attributable to moral hazard and a new vehicle ownership pattern. Rental car drivers are much more likely to commit grievous acts than other drivers, and the proportion of new automobiles in daily rental service more than doubled during the period of airbag adoption. Copyright The Journal of Risk and Insurance.