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Competition Makes Inspectors More Lenient: Evidence from the Motor Vehicle Inspection Market

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  • Osmis Areda Habte

    (Swedish Competition Authority)

  • Håkan J. Holm

    (Lund University)

Abstract

We investigate whether increased competition among inspection firms leads to an increase in the inspection pass rate in the Swedish car inspection market, which is heavily regulated and consciously designed to mitigate incentives to violate government regulations. We use a panel dataset that represent 22.5 million car roadworthiness tests that were conducted during the period 2010–2015. Fixed effects and instrumental variable estimations, which are used to account for the endogeneity of competition, show that inspection stations that operate in highly competitive markets are more lenient toward their customers than are stations that operate in less competitive markets.

Suggested Citation

  • Osmis Areda Habte & Håkan J. Holm, 2022. "Competition Makes Inspectors More Lenient: Evidence from the Motor Vehicle Inspection Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(1), pages 45-72, August.
    • Handle: RePEc:kap:revind:v:61:y:2022:i:1:d:10.1007_s11151-022-09864-z
    DOI: 10.1007/s11151-022-09864-z
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    2. Samahita, Margaret & Holm, Håkan J., 2020. "Mining for Mood Effect in the Field," Working Papers 2020:2, Lund University, Department of Economics.
    3. Samahita, Margaret & Holm, Håkan J., 2023. "No mood effects in the field: The case of car inspections," Journal of Economic Psychology, Elsevier, vol. 96(C).

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    More about this item

    Keywords

    Illegal leniency; Pass rate; Competition; Deregulation; Motor vehicle inspection market;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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