United States: The Economic Costs And Benefits Of A Federal Mandate That All Light Vehicles Employ 5.9 Ghz DSRC Technology

Last Updated: May 16 2016
Article by Coleman D. Bazelon and Lucrezio Figurelli

Executive Summary

On August 20, 2014, the National Highway Traffic Safety Administration ("NHTSA") announced its proposal to mandate a vehicle-to-vehicle ("V2V") communication standard in the 5.9 GHz band known as dedicated short range communications ("DSRC"). In the report accompanying the proposal ("V2V Technology Report"), the NHTSA presented preliminary estimates of the direct monetary costs of a potential V2V DSRC mandate and of the benefits in terms of reduced crash rates, fatality rates and crash severity under three different implementation scenarios. However, while highlighting the economic practicability and the potential safety benefits of a mandate, the NHTSA's analysis has several limitations and ultimately does not constitute a suitable analytical framework to evaluate the full set of benefits and costs of a mandate. Most importantly, the NHTSA's analysis:

  1. Only measures the incremental costs and benefits of the technology relative to the current state of vehicle-safety technologies, and not relative to an appropriate baseline that includes other expected safety improvements.
  2. Does not consider the opportunity costs of the spectrum or whether alternative spectrum sharing scenarios could meet the technology's objectives and requirements and promote its efficient use.
  3. Does not consider the plausible externalities—positive or negative—that a mandate on V2V would have on investment in, and development of, substitute and complementary vehicle-safety technologies.
  4. Does not attempt to monetize the welfare benefits of a mandate.

In addition to these major limitations, the NHTSA's analysis suffers from many potential inaccuracies. The overall effect of these limitations and inaccuracies is to paint an overly optimistic picture of the current DSRC proposal and to fail to maximize total benefits by ignoring the opportunity cost of not sharing spectrum in the 5.9 GHz band with unlicensed uses when spectrum sharing has the potential to maximize consumer welfare while still permitting the NHTSA to accomplish V2V safety of life objectives.

In this paper, we review and adjust the NHTSA's analysis, and extend it to analyze the welfare effect of a V2V DSRC mandate under alternative policy configurations, relative to an alternative scenario in which V2V is not mandated. Building on the NHTSA's analysis, we develop a preliminary cost benefit analysis ("CBA") that accounts for the likely trends in safety technologies, allows for some possibility of failure and miscommunication among DSRC devices, and monetizes the safety benefits in accordance with the Office of Management and Budget ("OMB") guidelines. To highlight the opportunity costs associated with spectrum use, we compare a mandate assigning the full 75 MHz of spectrum for exclusive DSRC use to an alternative scenario that conservatively provides for exclusive DSRC use of the upper 30 MHz of the 5.9 GHz band. Under the plan, originally proposed by Qualcomm, unlicensed Wi-Fi would only share the lower 45 MHz of the 5.9 GHz band. The proposal would capture the full safety benefits of V2V technology and at the same time promote efficient use of the scarce spectrum resource.

We estimate the welfare effects of a V2V DSRC mandate as of 2015, both under the NHTSA original assumptions and under appropriately revised assumptions, and account for the opportunity cost of the scarce spectrum resource. We conclude that:

  1. NHTSA's inappropriate application of assumptions and baseline overstates the net benefit of a V2V DSRC mandate by hundreds of billions of dollars. Once the NHTSA's assumptions are properly adjusted, the net benefits of a V2V DSRC mandate are dramatically reduced and, under some parameter assumptions, become negative.
  2. The net benefits of a V2V DSRC mandate without spectrum sharing range between a net loss of $140 billion and a benefit of $442 billion, depending on the parameter assumptions. Conversely, the net benefits of a mandate allowing for shared use of the lower portion of the 5.9 GHz band would always produce large, positive benefits ranging between $191 and $744 billion.
  3. Shared use of the lower portion of the 5.9 GHz band would both achieve the full safety benefits of V2V communications and maximize the value of the spectrum regardless of the parameter assumptions used. Shared use would produce a surplus ranging between $166 and $603 billion.

I. Introduction

On August 20, 2014, the NHTSA published an Advance Notice of Proposed Rulemaking ("ANPRM")1 in which it announced a proposal to mandate "vehicle-to-vehicle (V2V) communication capability for light vehicles [...] and to create minimum performance requirements for V2V devices and messages."2 Specifically, NHTSA proposed to mandate a type of V2V communications called DSRC.3 The proposal was accompanied by an extensive report on the readiness of V2V technology ("V2V Technology Report")4 and invited commenters to submit—no later than October 20, 2014—their research, comments, additional information and data to inform the agency in the development of an effective proposal.

V2V is a technology "designed to transmit basic safety information between vehicles to facilitate warnings to drivers concerning impending crashes"5 through DSRC devices using wireless communication channels in the 5850-5925 MHz band (the "5.9 GHz" band, also known as the U-NII 4 band)6 that the Federal Communications Commission ("FCC") made available for automotive use in 1999, on a shared basis with existing incumbents.7 Although none of the driver assistance applications that exist today rely on DSRC or the 5.9 GHz spectrum and other non-DSRC warning and crash-avoidance applications are in development, the NHTSA argues that DSRC "will either be the sole enabler of some safety applications or present a possible enhancement to on-board systems."8 In particular, the agency states that "DSRC is the only technology that can enable Intersection Movement Assist, Left Turn Assist, and Electronic Emergency Brake Light" functions.9 NHTSA's ANPRM, however, does not explicitly propose to mandate these particular warnings, but only states that it would create minimum performance requirements for V2V devices and messages.10

DSRC relies on radio spectrum. However, sixteen years after the FCC made 75 MHz of spectrum available to intelligent transportation systems ("ITS"),11 laying the groundwork for the current DSRC proposal, the 5.9 GHz band remains virtually unused for ITS purposes.12 As demand for finite spectrum has reached unprecedented levels and is expected to continue to grow, the President and the Office of Management and Budget ("OMB") have directed federal agencies to promote efficient use and sharing of the spectrum and to conduct cost-benefit analyses to evaluate the use of spectrum resources.13 In addition, in 2013 the FCC opened a proceeding to establish rules that would allow sharing of the 5.9 GHz band between DSRC and unlicensed Wi-Fi technologies.14

Acknowledging the current FCC proceeding, NHTSA's ANPRM invited commenters to provide additional research and evidence in support of or against sharing of the spectrum in the 5.9 GHz band, and asked whether unlicensed Wi-Fi technologies would interfere with V2V communications. NHTSA also requested advice on "how might NHTSA evaluate opportunity cost associated with [...] forgone alternative uses of the spectrum."15

In the accompanying V2V Technology Report, the NHTSA presented preliminary estimates of the direct monetary costs of a V2V mandate and of the benefits in terms of reduced crash rates, fatality rates and crash severity under three different implementation scenarios.16 However, while highlighting the economic practicability and the potential safety benefits of a mandate, the NHTSA's analysis has several limitations, fails to consider alternative uses of the 5.9 GHz band, and ultimately does not constitute a suitable analytical framework to evaluate the full set of benefits and costs of a mandate. In particular, the NHTSA's analysis:

  1. Only measures the incremental costs and benefits of the technology relative to the current state of vehicle-safety technologies, and not relative to an appropriate baseline that includes other expected safety improvements.
  2. Does not consider the opportunity costs of the spectrum or whether alternative spectrum sharing scenarios could meet the technology's objectives and requirements and promote its more efficient use.
  3. Does not consider the plausible externalities—positive or negative—that a mandate on V2V would have on investment in, and development of, substitute and complementary vehicle-safety technologies.
  4. Does not attempt to monetize the welfare benefits of a mandate.

In addition to these major limitations, the NHTSA's analysis suffers from many potential inaccuracies. The analysis uses overly simplistic assumptions in the calculation of benefits and ignores the costs necessary to keep V2V devices current. Furthermore, the analysis does not provide support for the chosen implementation scenarios, and does not present reasonable sensitivity analysis with respect to most inputs, including discount rates, equipment costs, fuel economy, and simulation results. The overall effect of the limitations of the NHTSA's analysis is to paint an overly optimistic picture of its DSRC proposal and to fail to maximize total benefits by ignoring the opportunity cost of not sharing its spectrum with unlicensed uses.

In this paper, we review and adjust the NHTSA's analysis, and extend it to analyze the welfare effect of a V2V DSRC mandate from an economic perspective, highlighting the opportunity costs associated with spectrum use and the benefits arising from the mandate under alternative policy configurations, relative to an alternative scenario in which V2V is not mandated. Building on the NHTSA's analysis,17 we develop a CBA that accounts for the likely trends in safety technologies, allows for the possibility of failure and miscommunication among DSRC devices, and monetizes the safety benefits in accordance with the OMB guidelines. Such analysis is required to perform a more accurate assessment of the costs and benefits of a mandate that will be useful to policy makers and comply with NHTSA's cost-benefit obligations.18

Critically, and in contrast to what NHTSA has done, such a cost-benefit analysis should seek to find the policy alternative that maximizes benefits relative to costs. Presenting an analysis, as NHTSA has done, that simply shows that one of many policy alternatives appears to have some benefits is incomplete, at best. Rather, the analysis should support choosing the policy alternative that creates the greatest benefits in excess of costs.

In the remainder of the paper, we start by providing an overview of the NHTSA's analysis in Section II. We then discuss the necessary elements of cost-benefit analysis as a decision procedure for regulatory action in Section III, and highlight the limitations of the NHTSA's analysis in Section IV. In Section V, we provide a measure of the opportunity cost of spectrum use in the 5.9 GHz band and show that efficient sharing of the spectrum would increase overall utility and public benefit. In Section VI, we extend and adjust the NHTSA's analysis to measure the net welfare effect of a mandate under both exclusive DSRC use and efficient sharing of the 5.9 GHz band.

The paper also contains two appendices. In Appendix A, we measure how the welfare effect of a mandate changes using alternative high and low values for a statistical life.19 As a key component of our broader analysis of the opportunity cost of spectrum use in the 5.9 GHz band, in Appendix B, we analyze the likelihood of congestion in residential Wi-Fi use with and without sharing of the band. Throughout the report, we interchangeably use 5.9 GHz and U-NII 4 to refer to the 5850-5925 MHz band.

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Footnotes

1 Department of Transportation, NHTSA, 49 CFR Part 571, Federal Motor Vehicle Safety Standards: Vehicle-to-Vehicle (V2V) Communications. Hereinafter, "ANPRM."

2 ANPRM at 49270.

3 NHTSA's ANPRM proposes a "technology mandate" rather than an "outcome-based" rule leaving more flexibility to car manufacturers. The NHTSA believes that V2V capability would not develop absent a technology mandate since early adopters have no immediate safety benefits from the technology. See ANPRM at 49270.

4 NHTSA, "Vehicle-to-Vehicle Communications: Readiness of V2V Technology for Application," August 2014. Hereinafter, "V2V Technology Report."

5 V2V Technology Report, p. xiii.

6 The 5.85-5.925 GHz band is also referred to as U-NII 4. FCC 03-324, Report and Order, In the Matter of ET Docket No. 98-95 and RM-9096, adopted December 17, 2003 and Released February 10, 2004, p. 6.

7 V2V Technology Report, p. 63. Also, FCC 99-305, Report and Order, In the Matter of ET Docket No. 98-95 and RM-9096, adopted October 21, 1999 and Released October 22, 1999 (hereinafter, "Report and Order (1999)").

8 More generally, the agency claims that V2V DSRC technology has advantages over vehicle-resident sensor technologies both in terms of latency and range (V2V Technology Report, pp. xiv, 25 and 56). Results from extensive field trials in real world situations, however, evidenced how the reliable communication range—defined as the maximum distance with a communication error at or below 10 percent—might be well below NHTSA's stated goal of 300 meters. In fact when testing a 400 byte basic safety message ("BSM") transmitted at 6 Mbps the trials indicated a maximum reliable range of 51 meters for conventional DSRC. See Paul Alexander, David Haley, and Alex Grant, "Cooperative Intelligent Transportation Systems: 5.9-GHz Field Trials," Proceedings of the IEEE, 2011, Figure 12, p. 1226. Note that the BSMs are likely to be transmitted at 6 Mbps with an average size of 375 bytes (V2V Technology Report, p. 96).

9 V2V Technology Report, p. 56.

10 See ANPRM at 49270. It is worth noting, however, that measuring the safety benefits of the technology, the NHTSA assumes that V2V devices are equipped with the Intersection Movement Assist ("IMA") and Left Turn Assist ("LTA") applications. It is not clear, however, that auto manufacturers will universally enable them absent an explicit mandate.

11 V2V Technology Report, p. 87. See also Report and Order (1999).

12 See, for example, Spector, Mike. "Will a Scramble for Airwaves Dent Talking Cars?," May 18, 2015, available at http://www.wsj.com/articles/will-a-scramble-for-airwaves-dent-talking-cars-1431984106 (accessed November 30, 2015).

13 Comments from Rick Chessen at the National Cable & Telecommunications Association, "Re: Federal Motor Vehicle Safety Standards: Vehicle-to-Vehicle (V2V) Communications, Docket No. NHTSA-2014-0022," October 20, 2014, p. 2.

14 78 Fed. Reg. 21320, at 21321 (Apr. 10, 2013).

15 ANPRM, Section II.18.

16 V2V Technology Report, Sections XI and XII.

17 Our economic analysis relies on NHTSA's estimates of the effectiveness of the IMA and LTA safety applications as critical inputs. While we acknowledge that such estimates are based on preliminary laboratory simulations, review of the NHTSA's simulations from a technical perspective goes beyond the scope of the current analysis.

18 See Executive Order 12866, "Regulatory Planning and Review," September 30, 1993, hereinafter, "Executive Order 12866," and OMB, "Circular A-4, Subject: Regulatory Analysis," September 17, 2003, hereinafter, "OMB Circular A-4." The NHTSA obligation to perform a cost-benefit analysis is detailed in Section III below.

19 As discussed in Section IV.D below, the DOT requires that the benefit of preventing a fatality should be "measured by what is conventionally called the Value of a Statistical Life (VSL) [...]." The DOT further requires sensitivity analysis using recommended alternative high and low values. US Department of Transportation, Memorandum To: Secretarial Officers Modal Administrators, From: Polly Trottenberg and Robert Rivkin, Subject: Guidance on Treatment of the Economic Value of a Statistical Life (VSL) in U.S. Department of Transportation Analyses, February 28, 2013, p. 1. Hereinafter, "DOT VSL Memo."  

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