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

Published online by Cambridge University Press:  11 November 2019

Cass R. Sunstein
Cass R. Sunstein*
Affiliation:
Harvard University, Cambridge, MA, USA e-mail: csunstei@law.harvard.edu
*
e-mail: csunstei@law.harvard.edu
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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.

Keywords

Experience goodscost-benefit analysisunquantifiable benefitsbreakeven analysisD6D8H3
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 10 , Issue 3 , Fall 2019 , pp. 317 - 350
Copyright
© Society for Benefit-Cost Analysis, 2019

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Footnotes

*

Robert Walmsley University Professor, Harvard University.

Cass R. Sunstein served as Administrator of the Office of Information and Regulatory Affairs from 2009 to 2012 and spent considerable time on the rear visibility regulation. In general, he relies on the public record, but in some places, he builds on personal experience. Some of this essay draws on a section of Cass R. Sunstein, The Most Knowledgeable Branch, 164 U. Pa. L. Rev. 1607 (2016). The analysis has been updated, reoriented, and significantly revised, and the central thrust of the argument has been changed.

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