Automobile Air Bags in the 1990s: Market Failure or Market Efficiency?

This article seeks to explain the recent growth in the adoption of air bags in new automobiles. Our analysis focuses on market forces, that is, consumers' willingness to pay for air bags and automakers' responsiveness to consumers' willingness to pay. We find that air bags were offered by automakers because consumers were willing to pay for them--increasingly willing as information about actual experiences with air bags spread through the media and friends. Thus, in general, the market for air bags worked efficiently. Doubt has again been placed on the potential social value of automobile safety regulation and the efficacy of nonexperimental safety information campaigns.