ON REGULATING LIGHT-DUTY VEHICLE TECHNOLOGY: FEASIBLE INSTRUMENTS NOT EASILY CAPTURED

Since individuals may not individually prefer the light-duty vehicles (LDVs) which are socially preferred, and since the relative valuations of multiple external factors (emissions, energy, materials-depletion, non-internalized safety risks, noise, etc.) are normally unobservable or highly uncertain (and thus not straightforward to aggregate), it is argued that current knowledge based on welfare theory is too weak to be well suited for policy conclusions regarding product-implementation guidance. Nevertheless, when regulating products such as LDVs there is scope for regulatory capture (in this case, by the domestic LDV industry), which hardly reduces the intervention problem. In addition, a regulatory procedure frequently applied to LDVs is the use of a priori standards (as if the situation described above was not problematic enough). Using a one-time-period setting, this study suggests a general solution to all these problems. Following the Pigouvian-taxation principle, the relative weights of societal-impact factors are determined, in the product-benchmarking approach taken here, by using each LDV model's most favourable set of relative weights (restricted in accordance with information assumed available regarding the true relative weights), regardless of the origin (domestic or foreign) of the LDV-producers. This approach gives the socially preferred feasible technology alternatives a better chance of being implemented, regardless of where they are produced. The proposed solution is thus superior to captured regulatory approaches. (A)