Greenness versus safety in vehicle footprint selection

The purpose of this paper is to extend the economic literature regarding the questions of (1) how consumers choose the size of their vehicles; (2) how privately optimal choices of vehicle size may diverge from socially optimal choices; and (3) how privately optimal choices can be better coordinated to achieve social efficiency. The consumer’s private decision of vehicle size is complicated by two social factors. First, larger vehicles may impose safety hazards to drivers of smaller vehicles. Second, smaller vehicles yield environmental benefits enjoyed by all drivers. White in (J Law Econ 47:333–355, 2004 ) analyses private versus social choice in the presence of the first factor (safety). We extend White’s model so as to take the second factor (greenness) into account, enabling us to better understand how consumers weigh the tradeoff between greenness and safety as vehicle size increases. We explore possible economic policy levers (taxes and tradable permits) that can reward individual selection of smaller vehicles and therefore help mitigate the so-called “arms race” in vehicle sizes. Copyright Springer-Verlag Berlin Heidelberg 2014