New emissions testing regulation gives repair shops reasons to cheat

Aug. 20, 2007 -- In the never-ending quest to make sure cars are not spewing large quantities of pollution into the air, states are implementing new and easier ways to ensure automobiles are both safe and environmentally friendly.

In September, Missouri will allow private repair shops to conduct both safety and emissions tests simultaneously, making it easier for car owners to renew their license plates.

But there's a potential problem with the new plan, according to a professor at the Olin School of Business at Washington University in St. Louis: repair shops have very strong incentives to cheat, but not in a way that helps reduce pollution.

"Most people think that repair shops tell them that their car is broken when it's not," said Lamar Pierce, assistant professor of strategy. "The assumption might be that in an emissions test, the dishonest stations are going to make people fail so they'll be forced to get repairs. That's not how it actually works. In reality, stations might cheat by helping people pass."

The reasons repair shops have an incentive to falsely pass a car are many, Pierce said. Individual employees may decide to allow a car to pass as a favor to a friend or family member. But there are also ways in which the firm itself, and not individuals, has an incentive to cheat.

"Let's say a repair shop has a loyal customer with a 1982 IROC-Z Camaro, not the most durable car in the world," Pierce explained. "The last thing the repair shop would want is to have that Camaro fail an emissions test. The shop wants to keep that car on the road. If it turns out that the car deteriorated so much that it can't pass emissions and there's no simple fix, the customer might go out and buy a new car. New cars don't tend to break down very often. There goes that repair shop's steady revenue stream."

It's not always a matter of a station wanting to keep customers; it might also be a matter of attracting new ones.

"Some people will actually shop around for a place that will allow their car to pass," Pierce said. "Someone may have an Nissan that he knows isn't likely to pass inspection. The customer brings the car to a shop and says, 'I don't think this car is going to pass the emissions test.' The response might be, 'We'll see. Let's plug it in and if doesn't pass we'll repair it for you.' Rather than test the vehicle, the customer moves on to another station and until the response is, 'Oh, don't worry, we'll make sure it passes.' That station just won a new client."

Pierce said that no matter a state's regulations, it doesn't take long for a dishonest station to find a way to cheat the system. The benefits of privatizing emissions testing are many, however and often outweigh the inevitable fraud associated with it. Furthermore, this is not a problem unique to the emissions testing industry. With the right incentives and insufficient regulatory oversight, firms in a wide array of markets may consider engaging in illegal strategies.

Editor's note: Professor Pierce is available for live or taped interviews using Washington University's free VYVX or ISDN lines. Contact Shula Neuman at sneuman@wustl.edu, (314) 935-5202 or Lamar Pierce at pierce@wustl.edu, (314) 935-5205.