Re: AltInst: Effects-Based Government Regulation of Automotive

From: Robin Hanson <>
Date: Wed Jun 07 2000 - 17:46:55 PDT

Nicholas Albery asks us to comment on Dale Gibby's proposal:
>... in ... automotive safety, I suggest ... Rather than the government
>micro-managing the industry, they should merely collect statistics on
>accidents and impose a financial penalty based on those statistics.
>This money ... enters the general tax fund ... the concept is clear and
>simple: Measure the risk imposed on society. Use this measurement to
>impose a penalty on the producer. ... Governments must regulate
>safety because automotive companies have a financial incentive to cut
>corners, sacrificing safety for profits.

You are suggesting what economists call a "Pigovian tax". Yes, if you
can measure the amount of externality that a firm imposes on others
that it doesn't not take into account in choosing its actions, you can
improve things by imposing a tax of the same amount on that firm.

If you thought car firms had no other incentive whatsoever to make
cars safe, and you could estimate a typical value of a human life, then
you could have car firms pay the total dollar value of the lives lost
in car accidents. This would discourage the production of cars,
however, and so you might also want to given car firms some constant
subsidy, independent of the number of people who die.

Of course car firms do have other reasons to make cars safe, both
because customers prefer safer cars, and because car firms are
sometimes liable for car accidents. So the hard thing is to actually
estimate any existing externality that needs correcting. I doubt
if we even know the sign of this externality, that is, whether without
the tax you suggest cars are made too safe or not safe enough.

Robin Hanson
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030
703-993-2326 FAX: 703-993-2323

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Received on Wed Jun 7 17:55:47 2000

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