Nonmarket failure

Unintended side effects, or derived externalities, are another nonmarket failure found in traffic safety poUcy. The most striking example comes from the review of the evidence on the safety effects of vehicle safety standards. In Chapter 3 we concluded that while overall highway travel is safer, nonoccupants such as pedestrians, bicyclists and motorcycUsts are in greater danger. Because the policy approach ignored risk compensation this occupant-nonoccupant tradeoff was unexpected by policy makers. 

Charles Wolf, Jr. A Theory of Nonmarket Failure Framework for Implementation Analysis Journal of Law and Economics 22 (April 1979) 107-140. 

The FHWA acknowledges the interrelated system of vehicle, hiunan and roadway environment in their general discussion of traffic safety. See U. S. Department of Transportation. National Highway Traffic Safety Administration and Federal Highway Administration. Midway Safety 84. A Report on Activities Under the Highway Safety Act of 1966.1986, page 68. The fact that two administrations vduch deal with traffic safety are located in the same Department and use incompatible approaches is an example of nonmarket failure. 

Some commentators have criticized the MMV estimate on grounds that it assumes small chnical trial sizes, nonmarket cost data, and highly conjectural failure rates (Calfee 2004). More generally, private pubhc partnership budget estimates show enormous variability for reasons that are poorly understood. Commentators warn that they require great caution (Towse, Mestes-Fernandez, and Renowden 2004). 

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