OFFSETTING BEHAVIOR EFFECTS OF THE CORPORATE AVERAGE FUEL ECONOMY STANDARDS

John M. Yun (*) 1. INTRODUCTION Consumers value many attributes of an automobile. The problem for regulators is that many features are highly interrelated, such as safety and fuel economy improvements. Both features are highly correlated with vehicle weight. Greater weight increases the level of safety, in terms of crashworthiness, but decreases the fuel economy. Therefore, regulatory attempts to improve fuel economy, such as the Corporate Average Fuel Economy (CAFE) Standards, (1) are likely to alter average vehicle weight, which will alter the safety of a vehicle. Crandall and Graham (1989) find the reduction in weight attributable to CAFE results in a 14%-28% increase in occupant fatality risk. This article seeks to determine whether drivers are changing their behavior to mitigate the detrimental safety effects of CAFE, which is essentially another application of Peltzman's (1975) offsetting behavior hypothesis. CAFE, through a reduction in passenger car weight, will increase the ex ante cost of risky driving (2) relative to its expected benefit. The reason is that, once an accident occurs, the probability of serious injury or death has increased. The offsetting behavior hypothesis is that consumers, aware of the increased vulnerability, will exercise greater due care and reduce the amount of risky driving on the road as a result of CAFE. However, CAFE has not just affected the average passenger car weight. Godek (1997) and Yun (1999) indicate that CAFE has positively affected the relative sales of light trucks(3) to passenger cars. If we assume that light trucks are basically heavy cars with greater visibility, the same arguments made for offsetting behavior on the part of passenger car drivers can be applied here. (4) The main difference is that truck drivers will be more aggressive and risky because trucks are heavier, which lowers the cost of risky driving. Thus, if CAFE induces more trucks to be on the road, according to the offsetting behavior hypothesis, CAFE will increase the amount of aggressive truck driving while simultaneously decreasing the amount of aggressive car driving. Although the article will focus on the offsetting behavior from changes in passenger car weight, it is just as relevant for changes in relative truck miles driven. Section II reviews the recent research linking automobile weight changes with CAFE and recent empirical studies that apply offsetting behavior to automobile regulations.(5) Section III details the methodology used to test the offsetting behavior hypothesis. Section IV contains a discussion of the data. The results are reported in section V, and section VI concludes the article. II. BACKGROUND The CAFE standards were initially set at 18.0 mpg for passenger cars and between 15.8 to 17.2 mpg for various light trucks. These standards have steadily increased to the current levels of 27.5 mpg for passenger cars and 20.7 mpg for light trucks. (6) The key impact of CAFE on consumer safety is a reduction in the average passenger car weight. Figure 1 illustrates the fall in weight since CAFE's passage in 1975. Crandall and Graham (1989) attribute 14% of the fall in weight to CAFE. (7) Using single-car accident data, they estimate the elasticity of highway occupant fatality rates with respect to average car weight is between -1.22 and -2.30, which implies a 17%-32.2% increase in the fatality rate due to CAFE. Using the upper and lower bounds, Crandall and Graham (1989) estimate that CAFE is responsible for 2,200-3,900 more deaths over the life span of the cars from a given model year. (8) However, there is no attempt to explicitly measure possible offsetting behavior effects. Not all studies find a positive relationship between weight and safety. The General Accounting Office (GAO)(1991) acknowledges a theoretical link between automobile size and safety; however, they find no direct empirical link between the two. …