In 2009, the Consumer Product Safety Commission (CPSC) announced its intention to regulate a class of recreational off-highway vehicles commonly referred to as “side by sides.” These vehicles are different from their off-road ATV cousins in that side by sides have bench or bucket seats instead of straddle seating, floor pedals instead of hand levers for throttle and braking, and a steering wheel instead of handlebars for steering.

The CPSC released its proposed rule last November. We have been analyzing the rule and filed a public interest comment in which we raise serious issues with the commission’s regulatory analysis.

Most consumer products—be they chemicals, chainsaws, or cribs—pose some amount of risk to users. The CPSC estimates that those risks cost American consumers at least $1 trillion a year from injury, death, and property damage. (When a product causes harm, the consumer may seek recompense from the manufacturer through the courts. Whether the tort process would be likely to reduce the kinds of risks that are the object of this proposed regulation is a complex issue, however. In this short piece we focus on the remedies that are proposed by the CPSC.)

Because people live in a world of tradeoffs, they exchange some amount of risk for some amount of gain, convenience, or pleasure. When risk becomes excessive—or, in CPSC statutory language, “unreasonable”—Congress has directed the commission to issue rules intended to curb that risk and protect consumers.

The two key questions are thus (1) “When does a reasonable risk become unreasonable?” and (2) “Will the proposed regulations reduce the risk?” The statute does not define “unreasonable risk,” but the legislative history and subsequent case law indicate that a determination of unreasonableness should involve a weighing of a product’s value against frequency and severity of injury. The vagueness of that standard and the lack of CPSC guidelines on the subject mean that, in practice, a product meets the unreasonable risk standard when at least three of the five CPSC commissioners say it does.

Our comment on the proposed regulation considers both whether the current analysis of the regulation satisfies this balancing test and whether the CPSC provides sufficient evidence that changes proposed by the regulation will have the intended effect.

Measuring risks and benefits / To determine whether side by sides pose unreasonable risk, we consider how many accidents involving the vehicles have occurred, how severe those accidents are, and whether there are trends suggesting that the risk is increasing. The CPSC Regulatory Impact Analysis (RIA) for the proposed rule offers some data on the number and severity of accidents, but those data are only for the year 2010 and cannot indicate any trend. Thus, even though side by sides have been on the market since 1998, the CPSC provides no information about whether the vehicles are becoming more or less safe over time.

The CPSC uses the 2010 accident data to estimate the costs and benefits of the proposed regulation. In undertaking such an analysis, one issue is how to frame the cost-benefit comparison. Implicitly, the CPSC analysis treats the economic cost of death and injury as a cost to society that should be reduced if the regulatory cost of doing so is less than the benefit from cost avoided. An alternative perspective suggested by one-time Obama administration chief regulatory analyst Cass Sunstein argues that in the case of risk regulation where presumed beneficiaries bear the cost (in this case, the side by side users), it is reasonable to ask whether the beneficiaries’ willingness to pay for a reduction in risk exceeds the cost of achieving the reduction.

Those two differing perspectives imply different measures of risk. The RIA uses deaths or injuries per 10,000 side by side vehicles as the measure of risk. However, this measure does not capture the exposure to risk of injury or death from using a side by side, which is the measure that would seem more relevant for the kind of cost-benefit tradeoff that users face. A better measure would be the risk of injury or death per vehicle mile traveled. Unfortunately, data for annual vehicle miles traveled are not available. The distinction between the two measures is important, however, because the risk rate measured as incidents per mile traveled will tend to be lower than the risk rate per 10,000 vehicles that is used in the RIA. Applying a lower risk rate to the same economic cost of death and injuries used in the RIA could lower the expected benefits of the proposed regulations by enough that quantified expected benefits fall short of the quantified costs.

Appreciating the risk? / Further, the expected regulatory costs per vehicle, which are ultimately passed on to consumers, are not the only costs to be considered. Users of side by sides manufactured to meet the mandated changes in vehicle characteristics may also experience a decrease in utility, with an accompanying loss in consumer surplus, because of changes in the performance of side by sides. Will, as experts suggest, the proposed mandatory stability controls and understeering standards make the vehicles less fun to drive?

The CPSC discounts this question on the grounds that users may not be making the “right” tradeoff between performance and risk. Commissioner Robert Adler said in a January statement, “I doubt that most consumers truly understand the risk.” Thus, one element of the proposal is a requirement for manufacturers to hang an informational tag on vehicles for sale about the particular model’s stability standards.

The CPSC analysis treats the economic cost of death and injury as a cost to society that should be reduced if it passes a cost-benefit test.

The CPSC bases its case for mandatory stability standards and understeer performance on tests performed in controlled settings—and on pavement—while typical use of side by sides occurs in unpredictable, unpaved environments. The regulatory proposal also relies on studies conducted to analyze automobiles, which are definitively different from recreational off-highway vehicles. Lastly, the CPSC uses the case of the Yamaha Rhino—an early side by side model that underwent voluntary recall and repair beginning in 2009—as anecdotal evidence that similar repairs will reduce risk. One of several issues that the CPSC fails to address regarding this anecdote is the fact that Yamaha began taking the Rhino off the market shortly after the repair program commenced. Thus, there really is no way of knowing whether the safety-based modifications to the Rhino really did reduce the incidence of accidents, injuries, and deaths.

We thus return to our original issues. Do the risks of using side by sides in their current state pose an unreasonable risk? Does the CPSC provide sufficient evidence that its proposed regulatory remedies would lower risk at reasonable cost in relation to benefits received? As in most regulatory policy undertakings, questions like these must often be addressed with incomplete and imperfect data, and judgment calls. But in the case of side by side regulation, there are still enough open questions so that the case for regulation is best considered—to use the phrase from Scottish jurisprudence—unproven.