Rear Visibility and Some Unresolved Problems for Economic Analysis (With Notes on Experience Goods)

Abstract

In 2014, the National Highway Traffic Safety Administration finalized its rear visibility regulation, which requires cameras in all new vehicles, with the goal of allowing drivers to see what is behind them and thus reducing backover accidents. In 2018, the Trump administration embraced the regulation. The rear visibility rule raises numerous puzzles. First, Congress’ grant of authority was essentially standardless – perhaps the most open-ended in all of federal regulatory law. Second, it is not easy to identify a market failure to justify the regulation. Third, the monetized costs of the regulation greatly exceeded the monetized benefits, and yet on welfare grounds, the regulation can plausibly be counted as a significant success. Rearview cameras produce a set of benefits that are hard to quantify, including increased ease of driving, and those benefits might have been made a part of “breakeven analysis,” accompanying standard cost-benefit analysis. In addition, rearview cameras significantly improve the experience of driving, and it is plausible to think that in deciding whether to demand them, many vehicle purchasers did not sufficiently anticipate that improvement. This is a problem of limited foresight; rearview cameras are “experience goods.” A survey conducted in 2019 strongly supports this proposition, finding that about 56 % of consumers would demand at least $300 to buy a car without a rearview camera, and that fewer than 6 % would demand $50 or less. Almost all of that 6 % consists of people who do not own a car with a rearview camera. (The per-person cost is usually under $50.) These conclusions have general implications for other domains in which regulation has the potential to improve social welfare, even if it fails standard cost-benefit analysis; the defining category involves situations in which people lack experience with a good whose provision might have highly beneficial welfare effects.

Hayekian behavioral economics

“…A sharp, balanced discussion can be found in Graham et al (2019), with what seems to me a prudent conclusion: 'It seems that agency analysts should adopt a middleground position between full consumer valuation of fuel economy and no consumer valuation of fuel economy, and perform sensitivity analyses with different partial degrees of consumer valuation'. economy mandate might well be justified, because it would produce an outcome akin to what would be produced by consumers who are at once informed and attentive (Sunstein, 2019). Energy efficiency requirements might be justified in similar terms, and indeed, the argument on their behalf might be stronger.…”

Behavioral Welfare Economics

“…4 Return in this light to the cases of Masters, Lancaster, Harston, and Ullner. Masters might suffer from a lack of information or unrealistic optimism (Sunstein, 2019b). Lancaster does not have important information, and he might also have a self-control problem.…”

“…In some cases, it might also point in the wrong directions. Consider, for example, the question whether a soda tax is a good idea ; whether energy efficiency regulations can be justified as a response to consumer mistakes (Allcott, 2016); whether heavy taxes on cigarettes might make smokers better off (Gruber & Mullainathan, 2005); whether motor vehicle safety regulation might provide people with "experience goods," such as rear visibility, and thus improve their lives by their own lights (Sunstein, 2019b); and whether nudges or mandates might be a good idea in the context of a pandemic (to prevent harm to choosers, not to others). In these and other cases, falling short of a philosophical ideal might turn out to be a fatal flaw.…”

“…The suggestion here is simply that we should treat people in accordance with their real abilities and their real limitations." 11Sunstein (2019b) finds what seems to be a significant mistake, on the part of consumers, with respect to a technology designed to make driving safer.202Cass R. Sunstein…”

Free-baiting: policy applications for freeness removal and the zero price effect

“…Federal regulations must include a cost-benefit analysis (United States Executive Order No. 12,291, 1981;Sunstein, 2019), which treats all goods as fungible by pricing them in dollars (Chen, forthcoming). This implies a trade-off between money and, for example, clean air, children's health or workers' safety.…”