Bresnahan, T.F. & Yao, D.A. (1985).

The Nonpecuniary Costs of Automobile Emissions

Standards. The RAND Journal of Economics, 16, 437-455. Retrieved from
http://www.jstor.org/
This study focused on the nonpecuniary cost of automotive pollution control. They contested
that the pecuniary elements of these costs - the devices installed on the car, the maintenance, and the
fuel efficiency- have been carefully studied yet the nonpecuniary components- the decreases in
drivability, acceleration, and cold-start performance-have never been satisfactorily quantified,
although there is reason to believe that they are important. A methodology for econometric
assessment of such costs was developed, and applied to the automobile air pollution standards of 19
72-1981. They found that these costs are important. They used second-hand car prices to estimate
consumers' willingness to pay to avoid the nonpecuniary disamenities associated with automobile
emissions standards. They model those disamenities as an element of automobile quality, and
developed a framework for measuring the changes in product quality associated with regulatory
compliance. Their framework for assessing quality change is based on changes in the cross section
rate of depreciation. At any given time, older vintage cars are less valuable than newer ones with the
same (nonage) quality attributes. When the newer car is of lower quality because of compliance with
a more stringent emissions standard, this difference is diminished. A measure of the lower quality is
obtained by comparing the cross section rate of depreciation in years when newer cars meet more
stringent standards with the rate in years when both newer and older cars meet the same standards.
Their method bases the estimates only on automobile models whose nonemissions characteristics
remain essentially constant from one year to the next.
They found that consumers' valuations of the quality differences of cars complying with
different standards are of the same order of magnitude as the capital costs and fuel economy costs of
those standards. In the case of the 1973 standards set by the EPA, these nonpecuniary compliance
costs were as large as the manufacturer's costs plus the foregone fuel economy. Since 1973, however,
the rate of technological progress in mobile-source pollution control, as reflected in improved
automobile performance, was rapid. After 1974 the private interests of automobile manufacturers
were to provide the EPA with accurate pecuniary cost estimates. These estimates, however, counted
the costs of increases in product quality in regulatory compliance costs and omitted the important
complicated calculation of the value of improved drivability to consumers. This study called for more
researches on the importance of nonpecuniary costs in final decision making.