inst ead focused on ot her vehicle attribut es demanded by the market. There is no reason y trend of to fuel econ continue. "9He indicat ed that average vehicle weight had increased by 12% from 1987 to sepower increased by 70% industry has responded to consumer demand by using improved fuel efficiency to provide creases in vehicle size and power, result ing in no improvement in fuel economy. This suggests that higher fuel economy st andards would have subst ant ially reduced the value of the vehicles to consumers. The analvsis t hus focuses on the case of ax B. Private Choice Cit izen Us expected utility wy from consumpt ion is specified as ux2=xn(v(1-as+)-y-(1-s+)0+nN), where y is the price ofthe product, 0+ denotes the mean of v's post erior beliefs about 0 given the media's news report, s+E[0, s is the st andard corresponding to 0+, and zy E 10, 1 an indicat or variable with zy=1 denot ing a purchase and zy=0 denoting no purchase. o The cost to citizen v of the ext ernality from her purchase is(1-st)e+, and n[N,1 denotes the ext ent to which the citizen takes into account the effect of her purchase on n=N corresponds to ignoring those effect s, and n= l corresponds to taking them fully into account. The parameter n is thus a measure of ot her-regardednes free-rider problem is present when n<l. The parameter n is a charact erist ic of preferences nd is independent of informat ion about the seriousness of the issue. Initially, n is treat ed as fixed and small, and in Sect ion X it is viewed as responsive to moral suasion. A citizen with a valuation v satisfying U2U”(s+,0+,y) +(1-s+)0+mN purchases the product, and the ot hers do not. The demand X(st, 0+, y) for the product is X(s+,0+,y) U(s+,0+,y) 9 St at ement of Edward B. Cohen, vice president, Honda North America, before the Senate Committee on Commerce, Science and Transport ation, December 6, 2001 10 o simplify the model, s+ is assumed to be eit her 0 or s. That is, s is the st andard when the media reports that the ext ernality is very serious, and otherwise the st andardinstead focused on other vehicle attributes demanded by the market. There is no reason why this technology trend of improved efficiency (as opposed to fuel economy) should not continue.”9 He indicated that average vehicle weight had increased by 12% from 1987 to 2000 and average horsepower increased by 70%. This testimony implies that the auto industry has responded to consumer demand by using improved fuel efficiency to provide increases in vehicle size and power, resulting in no improvement in fuel economy. This suggests that higher fuel economy standards would have substantially reduced the value of the vehicles to consumers. The analysis thus focuses on the case of α≥1. B. Private Choice Citizen v’s expected utility uv from consumption is specified as uv = zv(v(1 − αs+) − y − (1 − s+)θ+ηN), where y is the price of the product, θ+ denotes the mean of v’s posterior beliefs about θ given the media’s news report, s+ ∈ {0, s} is the standard corresponding to θ+, and zv ∈ {0, 1} is an indicator variable with zv = 1 denoting a purchase and zv = 0 denoting no purchase.10 The cost to citizen v of the externality from her purchase is (1 − s+)θ+, and η ∈ [ 1 N , 1] denotes the extent to which the citizen takes into account the effect of her purchase on others. Thus, η = 1 N corresponds to ignoring those effects, and η = 1 corresponds to taking them fully into account. The parameter η is thus a measure of other-regardedness. A free-rider problem is present when η<1. The parameter η is a characteristic of preferences and is independent of information about the seriousness of the issue. Initially, η is treated as fixed and small, and in Section X it is viewed as responsive to moral suasion. A citizen with a valuation v satisfying v ≥ v∗(s+, θ+, y) ≡ y + (1 − s+)θ+ηN 1 − αs+ purchases the product, and the others do not. The demand X(s+, θ+, y) for the product is then X(s+, θ+, y) = N ￾ 1 − v∗(s+, θ+, y) vˆ
. (1) 9 Statement of Edward B. Cohen, vice president, Honda North America, before the Senate Committee on Commerce, Science and Transportation, December 6, 2001. 10 To simplify the model, s+ is assumed to be either 0 or s. That is, s is the standard when the media reports that the externality is very serious, and otherwise the standard is 0. 12