Externalities of Policy-Induced Scrappage: The Case of Automotive Safety Inspections

Connor R. Forsythe, Akshaya Jha, Jeremy J. Michalek and Kate S. Whitefoot

Journal of the Association of Environmental and Resource Economists, 2026, vol. 13, issue 2, 355 - 387

Abstract: Many transportation policies indirectly affect travel and resulting externalities by inducing changes in vehicle scrappage rates. We leverage the staggered removal of state-level safety inspection programs across the United States to estimate the effects of policy-induced changes in fleet size on travel and fuel use. Using a first-stage difference-in-differences model, we estimate that the removal of safety inspection requirements causes a 5% increase in fleet size on average. Using a second-stage instrumental variables framework robust to weak instruments, we can reject fleet-size elasticities of fleet travel distance above 0.43 and fleet-size elasticities of fleet gasoline consumption above 0.10. Our estimates suggest that assuming fleet-size elasticities of 1 would overestimate the total national externality costs of removing safety inspections by at least 150%, amounting to a cumulative national aggregate error from 1970 to 2017 exceeding $90 billion.

Date: 2026
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