South-Western College Publishing - Economics  
Now You Have to Buy an SUV!
Subject Opportunity cost of increased safety of an SUV is reduced safety of non-SUV drivers being involved in an accident with an SUV
Topic Scarcity, Choice and Opportunity Cost; Market Failure, Regulation and Public Choice
Key Words External Cost, Opportunity Cost, Private Benefit, Social Benefits
News Story

Driving around in an SUV may make you feel safer, but it is more dangerous to those around you, especially if non-SUV drivers are involved in an accident with an SUV. Michelle White, an economist at the University of California at San Diego, estimated that for each fatality that SUV drivers avoid for themselves, they cause four fatalities involving car occupants. Why?

Larger autos are supposed to be safer for occupants, but their designs make them more dangerous for others. Stiff panels on the SUV transfer more force to other vehicles, SUV bumpers don't align well with car bumpers, and the fact that they are larger causes more damage to car occupants' upper bodies and heads in collisions. The significant savings in safety for the driver of an SUV translates to significant costs for others.

Consider the following: If everyone in town drives a car, then a person is best off buying an SUV because of the safety factor. But this is harmful to society as a whole because of the safety costs imposed on others. Private incentives have produced social results that are sub-optimal. But as more and more people buy SUVs, the more likely you are to need one in order to make yourself safer should you have an accident with a larger vehicle like an SUV. If everyone drives an SUV, then you will need one, too, and the safety considerations are no longer an issue. Private and social incentives are aligned. This creates an "arms race," as Ms. White calls it, when purchasing cars.

Ms. White suggests some policies that might persuade drivers to consider the impact of their buying decisions on others, including increased liability rules, traffic rules, and insurance

(Updated February, 2004)

Questions
1.

Use a graphical analysis to show the difference in private and social incentives of buying an SUV. Where is the external cost?

2. Is the article arguing that we need fewer SUVs on the road? Why or why not?
3. What should be included in the cost of owning an SUV? Make a list of the considerations, including those listed in the article and any others you can think of.
Source Hal Varian, "The True Cost of SUV's." The New York Times. 18 December 2003.

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