Auto Inspections in Chile

Government intervention to improve social welfare does not always accomplish what it is intended to do. At times, government failure is far worse than supposed market failure. A great example of this failure is inspection stations (revisión técnica) in Chile. These monopoly concessions were granted with the idea of improving the quality of life in Chile, reducing air pollution and increasing the quality of automobiles running on the highway. Even if some of these ends are accomplished, the cost to consumers is not trivial, who usually have to wait several hours in line to complete the annual ordeal. State planners simply have failed to keep up with the explosive growth of the number of cars in Chile, especially in Santiago, and thus have not reallocated sectors and allocated more monopolists to them.

There are 164 revisión técnica stations in Chile, 25 of which are located in the Santiago metropolitan area. Regulation requires that these government-run stations grant approval to any vehicle operated in Chile. Air pollution, electrical and mechanical systems are inspected and approved annually. And consumers rely on the information provided by these stations to improve the quality of information about the vehicles they purchase. The stations are mainly run by four firms: Applus (Spain), SGS (France), Autotest (Chile), and Tüv (Germany), which have as many as 17 stations each.

Winning firms have to invest start-up capital of US$400,000 to US$2,500,000 to open a single station, but with the creation of artificial demand for their services (since consumers are forced to purchase their services), there is little doubt that the start-up capital will be recouped and that considerable profits will come. Gaining the monopoly privilege of running a revisión técnica in an area is simply good business. The firms stay busy every day and Chilean consumers and stockholders tend to have a lot of respect for private concessioners on account of their past successes in building roads and running public works.

Nevertheless, like any public enterprise or any other concessioned monopoly, the services provided are neither efficient nor optimal. "Customers" who are compelled by legislation to "buy" the services of the revisión técnica are not happy. (The cost is usually around $23.) They have to wait in long lines, perhaps for several hours in hot and uncomfortable weather, to complete the task or trámite. Passers-by can see long lines of cars waiting to get into the service bays. Those who need to complete a revisión técnica view the trámite as an affliction to be endured. (Note: sometimes one can get to a revisión técnica late in the day, perhaps an hour before closing, and get out in an hour or less if the backup is not too bad.) The month that a car must undergo its inspection depends on the last number on its license plate. Check the table at this link to find out your car's month. A map of locations of automobile, bus, minibus and truck inspections in Santiago is found at this link.

Consequently, despite the perceived beneficial social aspects of the regulation, revisión técnica is a perfect example of what economists call "government failure." By holding the reins on monopoly privileges granted, the state creates artificial barriers to entry and reduces competition by doling out the privileges to winning concessioners. That means that customers suffer from having lower quality of service (represented by time consuming wait times), fewer choices of location, and higher prices. There is no wonder why consumers detest having to undergo the procedure. 

And for that reason, revisión técnica is a Chilean government folly in the public disinterest. Everything is not rosy in the land down under.