Regulating to minimize negative externalities

In a article i read on msnbc.com, the state of California passed regulation this week mandating that all new cars use heat reflective windows beginning in 2012. It starts with just windshields, but will expand to all car windows in following years. The main idea behind the regulation is to reduce the heat inside cars, especially parked cars, in order to reduce the use of air conditioning. Since air conditioning reduces gas mileage, if the use of air conditioning is reduced, cars will use less gas per trip, and emissions will be lowered overall.

In terms of economics, the main goal of the regulation is to minimize the negative externality of air pollution. By implementing mandates that try to reduce the use of air conditioning, California is attempting to decrease the level of air pollution, and is passing this regulation ex post to remedy the current problem. This is a good method for regulation, as we see there is a negative externality that lowers welfare, and we are fixing the problem. This prevents any further welfare loss, and there will be a lower cost to government and society. While an ex ante regulation would be more efficient economically, we can't forsee all problems, and therefore we need to observe the problem before we are able to fix it. This is the case with the problem of air pollution due to car exhaust. As well, an ex ante policy might be harder to implement, since firms will be more likely to fight it as it will increase production cost and there is no current problem to use as motivation, as the problem hasn't occured yet. At least with an ex post policy, there is a current externality that is a strong motivation for a policy.

As with most regulation, there are people against the policy, as the mandate increases the cost of production to firms, and firms are trying to minimize costs. Along with the car industry, the cell phone industry is against it, as they say that the thicker glass would block cell signals, and people would not be able to call from their car. Along with these people against it, the policy might not be effective in reducing pollution, as people will still choose whether or not to use air conditioning when they drive. Despite this, the policy was passed, and only time will tell if the regulation suceeds in its goal of reducing pollution.

http://www.msnbc.msn.com/id/31566034/ns/us_news-environment/

Tim Booth