Public Citizen Comments to NHTSA on Proposed Rulemaking on Tire Pressure Monitoring Systems
September 6, 2001
Docket No. NHTSA-2000-8572
Re: Tire Pressure Monitoring Systems: Notice of Proposed Rulemaking
66 FR 38982 et seq., July 26, 2001
Public Citizen is pleased to submit these short additional comments to the docket regarding the National Highway Traffic Safety Administration’s proposed rule regarding tire pressure monitoring devices. Public Citizen has a special interest in this regulation because we worked alongside many other safety and consumer advocacy organizations last fall in supporting passage of the Transportation, Recall Enhancement, Accountability and Documentation (TREAD) Act, which included the authorization for this rulemaking.
Public Citizen wholly endorses the comments of Advocates for Highway and Auto Safety, as indicated in their submission. We agree that the agency’s multiple accommodations, in its rule, to permit an indirect monitoring system, do much to undercut the integrity of the rule and the monitoring systems’ reliability for consumers. The many potential inaccuracies which would be tolerated by the agency in permitting the use of indirect pressure monitoring systems would doubtless greatly reduce consumer confidence in the measuring device, and would thus not only endanger consumers during the calibration period, for example, but would also encourage an attitude of disregard toward the devices when they are properly functional. This is unacceptable, and is a far cry from the lifesaving intentions of Congress in enacting the TREAD Act’s enabling provisions.
As the above concerns are ably raised by Advocates, in these comments we wish to briefly indicate our disapproval of the cost calculations used by the agency in producing an estimation of the costs and benefits of its proposed rule. The agency reaches an inflated estimate by wrongly including in its cost total the profits to industry resulting from consumer purchase of the devices and related systems from the automotive industry. As noted in the Office of Management and Budget’s guidance document, Economic Analysis of Federal Regulations Under Executive Order 12866 ("Best Practices Guidance")(January 11, 1996), "[a]n important, but sometimes difficult, problem in cost estimation is to distinguish between real costs and transfer payments. Transfer payments are not social costs but rather are payments that reflect a redistribution of wealth."
The agency’s inclusion of transfer payments contradicts customary practices in calculating regulatory costs. In traditional cost-benefit theory, net social costs are represented by measuring reductions in producer surplus and reductions in consumer surplus caused by the regulation. This figure is then adjusted to reflect changes to secondary markets, which may either increase or offset direct social costs.
For most proposed regulations, it is viewed as impossible to estimate expected changes in consumer and producer surplus, so industry compliance costs are used as a proxy for net social costs. This practice results in an estimate of net social costs that is likely too high, because it omits to consider that part of industry compliance costs that is a transfer payment to other industries.
Furthermore, NHTSA and most other regulatory agencies rarely have the resources to fully evaluate industry cost estimates, which results in inflated costs being used as the basis for the agencies’ analysis. As the agency knows, the predicted costs of developing and marketing a new device often greatly decrease once the regulated industry must comply with a new rule and develops experience manufacturing the necessary item.
To make an inflated figure worse, in this case NHTSA estimated the net social cost of the proposed rule by adding industry’s compliance costs to the industry’s likely profits from charging consumers for the tire pressure monitors and related equipment ("consumer costs"). The profits portion of this 1.51 percent mark-up to retail value actually represents yet another transfer -- from consumers to producers -- and is also not properly considered a social cost.
Public Citizen believes that using this figure to represent net social cost in a cost-benefit analysis is unsound economic procedure, and has caused NHTSA’s estimations of the costs of both regulatory options in the agency’s cost-benefit analysis to be significantly inflated. We hope that the agency will address this error quickly, and avoid this mistake in any future rulemakings.