Monday, April 14, 2008

Consumer Reports Reveals that Sun Rises in Morning, Sugar Tastes Good, Fire Burns

Consumer Reports' automotive blog has an entry on a questionable government study. The government study concluded that the cost of making roofs in vehicles stronger was not justified by the number of lives saved. It estimated that if the strength of a vehicle's roof were raised so that it could support 3 times the vehicle's weight (as opposed to the current 1.5 times), it would save up to 135 lives per year. This would cost at least $1.2 billion, or almost $9 million per life saved. Increasing the strength to 2.5 times the vehicles weight would cost at least $88 million and save at most 44 lives per year, around $2 million per life saved. There is a new Insurance Institute for Highway Safety study which finds that raising all vehicles to the roof strength of the Xterra (which is around the "3 times" mark, depending on the weight of the vehicle as configured) would save more like 212 lives. They don't seem to dispute the cost estimates, so that puts us at around $5.6 million per life saved.

The frustrating thing about the Consumer Reports entry is that the title concludes "more lives could be saved". This seems to suggest that this is the end of the story--more lives can be saved, so more lives should be saved. But this does not follow. More lives can always be saved. We could reduce speed limits everywhere to 30 mph or less. We could require that all cars be surrounded with a layer of polystyrene foam. We could require that everyone undergo two years of intense driving training before being allowed to drive. All of these would save lives, and even if we did all of them, more lives could still be saved. The observation that "more lives can be saved" is trivial and unimportant. The question is not whether more lives can be saved, but rather, whether or not it is worth the cost. All the measures I just suggested likely have costs far in excess of benefits. Implementing them would be unwise. What about the suggested regulation mandating roof strength? Would it be wise?

It seems to me that it is a tough call. The value of of a life that is typically used for cost-benefit analysis is usually around $3 million to $6 million dollars, although I have seen numbers as high as $10 million dollars (these figures are based on observing the amount that people are willing to pay to avoid risks; it is not without controversy, resulting in the wide range I just reported). Now you can see how difficult this decision becomes. Some of these cost estimates are inside this interval, while others are outside or on the fringe. It looks like the 2.5 standard might be justified on cost-benefit grounds, using the NHTSA's numbers (which suggests to me that is even more likely to be justified if the IIHS's results are correct), while the 3.0 standard would probably be too costly according to the NHTSA's numbers, and questionable using the IIHS's numbers. This is much more interesting and useful, I think, than "more lives can be saved".

So perhaps the 2.5 standard should be implemented, and the 3.0 standard should not. Yet I think we can do better. Some people may be willing to pay for a safer vehicle, while others may not. The best policy would let people buy the car that best satisfies their risk preferences. I suggest an alternative to imposing a single standard: Require each manufacturer to report the strength of their roof. That is, suppose we say that a car meets the 2.5 standard if it can support 2.5 times its weight without suffering more than, say, 2 inches of crush (presumably tested just as cars are tested for rear-, side-, and front-impact safety). Cars that can do better can report a higher number. Get the producers competing over safety, and let consumers decide how much they want to spend on safety. Now everyone--including those consumers who are unwilling or unable to pay the extra for a slightly safer car--is better off.

2 comments:

Wilson said...

You say that more lives can always be saved. Not quite: More deaths from rolling over a car can be avoided, but risk-risk analysis stresses that the money that it costs to save a life by undertaking Activity A could have been used by individuals to reduce risks from Activities B - Z.

At some cost level, more people die because of the increased safety of Activity A. Of course, regulators and Consumer Reports writers will be unaware of these deaths, so they'll be ignored.

This takes us to the essence of practical regulation: The regulator must never appear to be doing harm.

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