Light-duty vehicles and external impacts: Product- and policy-performance assessment

Abstract In order to demonstrate that welfare theory can be put into practice, mathematical-programming methods are used here which can handle the aggregation problems facing us when information concerning the relative valuation of external factors (emissions, safety risks, non-renewable-energy use, noise, etc.) is highly uncertain. Product- and policy-performance measures are presented and then applied to one-time-period real data on the single, perhaps most welfare-affecting man-made consumer product of the 20th century: light-duty vehicles (LDVs). The focus when examining costs imposed on society due to individuals' (or other economic units') purchase and use of LDVs is here the total external cost from the choice of LDV technology. The relative weights of the external factors are then determined endogenously by (first) using, for each LDV model, the (unconstrained) set of weights most favorable to itself. The flexibility of the relative weights is then constrained according to assumed knowledge about “true” external relative costs. By this procedure it is possible to aggregate the multiple societal-impact factors of LDVs and thus to measure the total external impact of individual LDV-models relative to current best-practice technology.