ABSTRACT
The search for more efficient, market-oriented regulatory techniques has produced significant recent advances in several areas. Among these would appear to be the corporate average fuel economy (CAFE) approach to reducing gasoline consumption by the domestic automobile fleet. A firm can meet a binding corporate average fuel economy constraint by technological improvements or by shifting the mix of the vehicles sales toward high-mileage cars or both. The National Highway Traffic Safety Administration has repeatedly emphasized its belief that such techniques as weight reduction and changes in engines and transmissions would suffice. If auto manufacturers choose or are forced to use mix shift to meet the standard, they deliberately increase and decrease sales of their various models. In general, their total sales need not remain unchanged. Alternatives to the CAFE system, however, have their own difficulties. With the entirely unpredictable effects of the current system, some redesign seems in order, particularly as averaging spreads to other regulatory contexts.
