The Price of Safety

Abstract

This article presents a simple economic model to assess consumers' valuation of safety features. In particular, we model the benefit from safety as the reduction in the probability of death, and the associated economic value of this reduction. We then apply this theoretical model to investigate market valuation of antilock brakes and airbags via the specification and estimation of a hedonic price equation. Results indicate that consumers behave in a manner consistent with the economic model we develop.