Book Reviews

BFUAN SUMMERS Reviews

Vehicle Safety Inspection Systems: How Effective?

W. Mark Crab, Vehide Wety Inspection Systems: How E5ec- tive?, The American Enterprise Institute for Pnblic Policy Re- search, Washington, DC, 1980. pp. 70. paperback $4.25.

In recent years the theory of economic regulation has yielded surprising results when applied to social protection legislation. W. Mark Crain’s analysis of federally mandated vehicle inspection programs is an excellent example of this research.

The basic premise behind inspection programs is that, other things being equal, highway death and accident rates will be lower where mandatory vehi- cle inspection systems are in effect. However, in comparing the accident records of states having inspection programs versus those without such programs, Crain finds ‘no evidence that vehicle inspection systems are effective in reducing highway deaths or accidents.’

Crain reaches this conclusion through regression analysis. His equations incorporate nine indepen- dent variables: (1) the existence and nature of in- spection systems, (2) population density, (3) median family income, (4j fuel consumption, (5) federal highways, (6) population age, (7) procedure for driver’s license renewal, (8) alcohol consumption and (9) minimum damage required for reporting an accident. Differences in safety records (death rate, nonfatal injury rate, nonfatal accident rate) are ‘explained’ by these nine variables in order to isolate the effect of state inspection systems.

Overall, the basic equation ‘explained’ from SO to 80% of the differences in accident ratcs among the states. The relationships between the explanatory variables and highway accident rates were generally as expected. The single counterintuitive result was the absence of a relationship between mandatory inspection and accident rates. Crain offers two pos- sible interpretations of these results. First, periodic inspections do not imporve the inherent safety characteristics of vehicles. Second, periodic inspec- tions do make vehicles safer, but this potential for improved highway safety is dissipated by adjust- ments in driver behavior.

The former interpretation is supported by several types of evidence. First, only a small portion of highway accidents - 2-6% - are conclusively at- tributable to mechanical defects. In addition, no single mechanically related factor stands out as a

cause of accidents. Thus, diagnostic attention can- not be concentrated on particular problem areas. Finally, as several studies have shown, the detection rate of real (intentionally created) defects if often less than 50%.

The role of incentives is particularly important in Crain’s analysis. Vehicle owners certainly have in- centives for maintaining their vehicles in the ab- sence of mandatory inspection. They also have in- centives to seek out inspection stations which ig- nore borderline defects. Inspectors have incentives to minimize ‘hassling’ and to ‘discover’ nonexistent defects.

Adjustments in driver behavior are difficult to document, but Crain offers two plausible pos- sibilities. The first (described by Sam Peltzman) is that the perception of safer cars leads to more risk-taking by drivers. The second is a belief by drivers that government responsibility for safety maintenance makes their cars safer, and thus less in need of maintenance attention.

Incentives also play a role in identifying the sup- porters of mandatory periodic inspection. ‘The theory of economic regulation which stresses the gains to special interests offers useful insights here, a point of particular interest because the theory has been developed primarily in the analysis of economic regulation and has not been applied to social regulation (including consumer-protection regulation). This special interest approach would predict that the primary proponents of a nationally standardized inspection program are those trade associations of industries involved either directly in providing inspections or indirectly in manufacturing and distributing vehicle parts and accessories.’ In fact, this turns out to be the case.

Brian Summers - Foundation for Economic Education, Irvington-on-Hudson, USA

SIR BRUCE WILLIAMS Reviews

Industrial Innovation in the United Kingdom, Canada and the United States

Kerry Schott, Industrial Innovation in the United Kingdom, Canada and the United States, British-North American Commit- tee, London, 1981. pp. xvi + 65. $5.00 or f2.25 (paperback).

Members of the British-North American Commit- tee, puzzled by the apparent slowness of the three countries to adopt process and product innovations and concerned that the proportion of their GNP devoted to R & D had been falling both relatively

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and absolutely, commissioned Dr Kerry Schott to review what is known about the process of innova- tion and the steps required to stimulate it.

Dr Schott’s brief review (65 pages) has four sec- tions dealing with indicators of innovation, innova- tion and the economy, the economy and innova- tion, and policy issues.

The selected indicators of innovation are R & D expenditures, qualified manpower employed in R & D, patent applications and technology transfers. Although Dr Schott concludes that the indicators all tell much the same story and show that a decline in industrial innovation activity in the UK, Canada and the USA is taking place relative to other coun- tries, the extent of information on the indicators in those three countries, France, West Germany and Japan is far from adequate to validate such conclu- sions.

The second section is mainly concerned with R & D as the generator of innovation and economic growth, while the third section is concerned with the prevailing economic climate as the major deter- minant of innovation. From this account Dr Schott draws the conclusion that there is ‘a vicious circle where declining innovative activity contributes to a relatively poor economic performance and this in turn leads to a further decline in innovative activity’.

Given the history of continuing fluctuations in rates of innovation, in the balance between innova- tions that displace and extend the demand for labour, in rates of growth, it is surprising that there is very little reference to the extensive literature on such fluctuations. Any review of what is known about the process of innovation should include a comment on this literature.

Because of the emphasis on the relatively poor economic performance of the three countries in generating a vicious spiral of declining innovative activity and even poorer economic performance,

the final section on policy issues is rather thin. For on Dr Schott’s analysis the key to recovery in the economy and innovative activity is macro-economic policy which she treats as beyond the scope of her study. She recommends more Government funded basic research, more applied R & D activity, parti- cularly in the neglected sectors of industry (presum- ably also Government financed, with the hint that it might come at the expense of defence R & D), the greater use of Government purchasing to reduce the risks of innovation, and credit guarantees on the lines of the Canadian Enterprise Development Programme where there is a shortage of venture capital. Other policy suggestions made in the third section are a shift in patent policy in the USA and Canada to the ‘first to file’ system, and lower corpo- rate taxes on profit, investment allowances to offset tax on accelerated depreciation allowances. Unfor- tunately for the UK the proposed change of patent policy relates to the USA and Canada and, as Dr Schott points out, a decrease in corporate taxes or an increase in investment allowance is unlikely to have any immediate effect on R & D in the UK.

Our knowledge of the determinants o f ’R & D and innovation, and of short-term measures that would increase innovation and economic growth, are far from adequate. Dr Schott was given an exceedingly difficult task - to write a brief review of the determinants of innovations and R & D expend- iture in the three countries and of the steps required to stimulate innovation - and she would I think have helped the British-North American Commit- tee, and her readers, by giving more emphasis to the ups and downs of economies and by bringing into the open the issues on which we are most ignorant.

Sir Bruce Williams - The Technical Change Centre, London, UK

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