The document discusses the microeconomic impacts of self-driving cars. It notes that self-driving cars could eliminate many driving jobs but also create new transportation and technical jobs. While driver jobs may decline, new jobs in areas like fleet dispatching and vehicle repair are expected to emerge. The document also examines effects on supply/demand, consumers' willingness to pay, and policies to ensure job security during the transition to autonomous vehicles.

1. Micro-Economic Impact of Self Driving
Cars
Mehnaz Maharin
Term Paper for Business Economics (Principles of Micro Economic Policies E10A)
Harvard University’19
Abstract
Autonomous vehicles(AVs) are a part of fourth industrial revolution. The fourth industrial
revolution is adopted by many automobile companies as well. British company Jaguar Land Rover
is also trying to tackle the psychological barriers to humans trusting self-driving cars by adding
eyes to their prototype driverless car that are intended to “communicate” with pedestrians. In the
state of Massachusetts ,AV system developers located in the Commonwealth include nuTonomy
(an Aptiv company), Optimus Ride, NextDroid, and Toyota Research Institute. To describe the
problem from a welfare economics point of view, The US census estimates there were 10.8 million
motor vehicle crashes in 2009. To avoid double-counting, we'll assume only half of these weren't
already counted above in the 2.3 million injuries and 30,000 deaths. That leaves 5 million non-
injury crashes, which the Minnesota DOT estimates cost $7,400 on average, for a total cost of $37
billion (this is consistent with the US DOT estimate of $3,927 per vehicle). This puts the non-fatal
crash total up to $226 billion. Additionally If we extremely conservatively assume that the average
travel speed is 60 miles per hour, and that each vehicle holds one person, this translates to around
49.6 billion hours spent in the car, or 157 hours per person in the U.S. per year. The DOT uses an
average value of travel time savings of $12.98 for cost-benefit analysis. Driverless car will shift the

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economic diagram in many industries but mostly for drivers in the transportation network
companies. In a recent report, The Employment Impact of Autonomous Vehicles, the U.S.
Department of Commerce Office of the Chief Economist reveals the potential effects of self-
driving cars on the workforce. The study separates workers in driving occupations into two groups,
“motor vehicle operators” (truck drivers, bus drivers) and “other on-the-job drivers” (construction
workers, repairmen, first responders), revealing: In 2015, 5 million U.S. workers had jobs that
could be affected by self-driving cars (1 in 9 workers). In case of public transit and ride share
companies they can be treated as complements. While demand of ride sharing increases, it allows
consumers to pay a low fee for a better and faster journey than public transport – so the demand of
public transport decreases. Increase in public transport prices also effect the ride sharing market –
since Massachusetts raised the metro rail train fee it is affecting consumer’s choice to opt for ride
sharing services. According to Bureau of Labor there are 28,020 transportation drivers in terms of
public transit like bus, train, taxi and chauffeurs in Boston, Cambridge area including 10,000 uber/
lyft drivers. My hypothesis is these jobs will get massive threat due to the autonomous car industry
in the future which will lead Boston into more income inequality. Though it is certain that the
driver job market will face an unemployment growth, new jobs are expected to be created in three
broad categories: New transportation jobs; new AV-related jobs; and new jobs providing other
goods and services. To the extent that AVs reduce the cost of transportation, people will demand
more transportation—requiring greater employment in new transportation jobs. These roles include
fleet vehicle dispatchers and repair workers, increasing need to technical jobs due to more
introduction of these vehicles. This can be demonstrated as a positive externality that comes
around with autonomous vehicle. Income inequality is not the only offset that Autonomous vehicle
brings on the table , this income inequality is due to the reduction of employment and extra
earnings of transportation network company drivers. Since The paper requires to connect micro

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economic concepts with self-driving cars – my prior focus will be evaluating the supply demand
curves, externalities , customers willingness ,surplus etc.
Autonomous Vehicle Effect on Supply and Demand Curve
The Av industry is assumed to become 230 billion dollar by the year 2023.This clearly means the
supply curve would be increasing over the year. The supply of AV is car predicted to be 23000 in
the year 2025.The self driven cars are not public yet. This is one of the reason that their production
level is so low up to 2019. The Google Prius is shown to have 300,000 dollar (Sousaml,2014)
value now and the predicted value of decreasing price is 120,000 in 2025.
A visual view of the supply curve is given bellow:
The Demand for self driving car is predicted to be 4233 thousand units in the year of 2030[3].
The global self driving car market share is projected as follows: The driverless transportation
industry is divided is two parts:
1.General Transportation
0
5,000
10,000
15,000
20,000
25,000
2019 2020 2021 2022 2013
Number of Self Driving Cars in Future
Number of Self Driving Cars

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2.Defence
Reference : (“Self Driving Cars and Trucks Market size: Industry Report 2020,2030”)
USA anticipates the high adoption of driverless technology in transportation owing and also
increased the government support in amending transport to create a gateway for the truck market as
well. Europe is also expected to have a very attractive market with growth in consumer preference
for driverless cars.
The North American Market size of driverless cars and trucks are predicted to grow a large
demand in the upcoming years.

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Reference: (“Self Driving Cars and Trucks Market size: Industry Report 2020,2030”)
Self Driving Car and Positive Externality
As we know government internalize externality. It imposes corrective tax as negative externality
and provides subsidy for positive externality. The driverless car being extremely beneficial in a
socio economic aspect it assures positive externality for consumers such as saving valuable time,
being fuel efficient, cost efficient etc. Driverless Cars will also make the carpool more demanding
since consumers will be more inclined towards car sharing services rather than owning a car and
pay insurance cost and other cost such as perking tickets, accidental costs etc . This brings out a
large consumer surplus to the consumers and thus helps the economy with positive externality.
This is why the US government is spending 100 million in self driving car research. The new
funding includes $60 million for grants “to fund demonstration projects that test the feasibility and
safety” of self-driving vehicles, the spending agreement said (Shepardson,D.,2018). The funding
also includes 38 million regarding self driving car cyber security issues.

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Self Driving Car and Negative Externality
Self driving car has its own negative outcomes as well. One of the common notion is
unemployment. Since many of the jobs are fully depended on driving ,the possibility of losing
these jobs because of this new technology is very much likely. Due to the recent report from US
Department of Commerce’s Economics and Statistics Administration the mostly affected are going
to be 15.5 million jobs regarded only to driving in the states in 2015. Among all these driver 3.8
million of them are truck drivers who operates on highways are most vulnerable to losing the job
because its easier to navigate in highways rather than inside cities. From a report of Goldman
Sachs the automation will reduce 300,000 jobs a year. Jobs will not disappear on a whole night.
But it will degrade with time. According to Joe Pinkstone from Daily mail , most jobs will not
disappear by 2030 but after 2030 there would be massive transition and a huge portion of worker
has to learn new skills and switch occupation in order to survive the fourth industrial revolution.US
government is also funding researches on how to handle this issue.
Self Driving Car Pricing Strategy
The Price of Self driving cars should be a 100,000 dollar in the next two years since the supply is
extremely low right now. Once it is widely available the price is predicted to be 10,000 at a base
level for a AV set up in the car (“Free Time Full Pockets: How Seld Driving Car will Make you
money”). According to Insurance Journal (Delphi,2017) ,” While current estimates for the cost of a
self-driving hardware and software package range from $70,000 to $150,000, “the cost of that
autonomous driving stack by 2025 will come down to about $5,000 because of technology
developments and (higher) volume,” Clark said in an interview.
This implies one of the core principle of economics which is due to increase in supply the price of
the product decreases.

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Consumers’ Willingness to Pay on Vehicle Choice
The consumers willingness to pay is mostly presented here are from recent studies on how
customers preferences varies with safety, travel time and performance shape the demand for
driverless cars. Daziano , Sarris and Leard (2017) conducted a survey using Qualtrics online
platform to collect data from residents holding a driving license between September 12,2014 and
October 2,2014 of among 1260 individuals. The sample is broadly representative of US population
and the household income was between $61226 and $55000 respectively and reported estimates
from 2013 American Community Survey. For predicting price and consumer benefit the authors
trained the model and used the following equation to demonstrate logical regression.
Uij = xij
′
wx,i − αipriceij − γPFVC,iPVFCij + ϵij
Here,
i=Exogenous discounting takes as known the discount rate of individual i
xij
′
= Vehicle Design Attribute
wx,i=the change in utility from marginal improvements in the (nonmonetary) vehicle design
attributes that are captured in the vector xij
′
αi = the marginal utility of income
γPFVC,i =the change in utility from a marginal change in the present value of fuel costs
ϵij= erros
The base model was created using this equation and were extended to mixed logit specification.
The results of following table is the results of mixed logit models where key parameters are
normally distributed. The sample of choice given to the individuals are represented visually
bellow:

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To computer willingness to pay(WTP) for automation and other vehicles the authors estimated a
fixed parameter for vehicle purchase price then divide the preference parameters by the purchase
price parameters. The authors then used mixed-mixed multinomial logit specification for three
classes. Class 1 includes 29% of the sample data and it was set at base, Class 2 and 3 class
assignments are functions of socio economic covariate and Class 3 includes 38% of the data. Class
1 has an estimate of mean WTP of almost zero. These are the people who are unaware of the
autonomous vehicle revolution or never heard of driverless car and skeptical about technology.
Class 2 on an average are willing to pay a decent amount for automation ranging from $2784 to
$6580 for partial and full automation respectively. This group of respondents are eager to accept
the new technology once they are affordable. Their preferences are driven by knowledge of google
car, higher education level, driving long distances etc. Class 3 is population are between class 1
and class 2 .They are willing to pay a modest amount for either type pf automation. Class 3
individuals are also married and prefer driving. So their willingness to pay comes down to $1187
to $1142 for partial and full automation. The charts are shown bellow:

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According to the data for this research an average household is willing to pay 3500 to 4900 for
partial and full automation. Though the authors predicted that a significant fraction of household
will be willing to pay 10,000 for full automation.
Policies Suggested to Ensure Job security
The following policies are retrieved from center for global policy solutions website.
Automatic Unemployment Insurance (UI)
UI and related re-employment assistance benefits should kick in automatically for eligible workers,
particularly those in areas of the country likely to be hardest hit by job losses from autonomous
vehicles. UI and related job training and placement benefits should be fully funded and modernized
to meet the anticipated demand.

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Progressive Basic Income
Since the efficiency of today’s technological advancements may outpace our ability to replace
automated jobs with new jobs for the displaced, it would be prudent to establish a progressive basic
income (PBI) to offset the likely potential for seismic changes in the labor market. The Social
Security program—which has features that facilitate the collection and distribution of revenue on a
broad scale—is the most effective and efficient delivery mechanism by which this could be
accomplished. The Progressive Basic Income would not replace Social Security’s retiree,
disability, and survivor programs, but would be part of an expanded Social Security system.
Education and Retraining
Since the vast majority of workers in driving occupations have lower educational attainment levels,
education and retraining could help displaced workers secure comparable or better jobs. Although
higher education does not necessarily translate into jobs or economic mobility, policies that
promote affordable postsecondary education and training options— with built-in subsidies for
displaced workers—as well as fully funding existing programs such as American Job Centers, are
important options.
Expanding Support for Entrepreneurs
Programs and incentives that can help displaced workers start and sustain businesses could lead to
job creation and have a generative effect on the U.S. economy.

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Conclusion
The rise of self driving car is inevitable . Though there is a lot publishing about the job market for
drivers declining, its not going to happen overnight – whereas some reduction is definitely
promised. My opinion to deal with this issue is to find solution for smart transition. The issue also
comes with positive outcome – for example this industry will give birth to tremendous number of
technological jobs. There are a lot of policies suggested to tackle the situation and I believe more
studies are required in this field sothat economists come up with smart solutions that will keep up
mass people with uprising technology and fourth industry revolution.
References
Cost of Driverless Vehicles to Drop Dramatically: Delphi CEO. (2017, December 05). Retrieved from
https://www.insurancejournal.com/news/national/2017/12/05/473134.htm
Daziano, R. A., Sarrias, M., & Leard, B. (2017, February). Are Consumers Wiling to Pay to Let Cars
Drive them? Retrieved from https://media.rff.org/archive/files/document/file/RFF-DP-16-35-
REV.pdf
Free time and full pockets: How self-driving cars may save you money. (n.d.). Retrieved from
https://www.esurance.com/insights/self-driving-cars-save-money
Mailonline, J. P. (2018, January 23). Self-driving cars will leave third of people unemployed.
Retrieved from https://www.dailymail.co.uk/sciencetech/article-5301497/Self-driving-cars-leave-
people-unemployed.html
Self-driving Cars And Trucks Market Size: Industry Report, 2020-2030. (n.d.). Retrieved from
https://www.grandviewresearch.com/industry-analysis/driverless-cars-

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market?utm_source=pressrelease&utm_medium=referral&utm_campaign=PRN_Aug01_Self-
Driving_Cars_RD2&utm_content=Content
Shepardson, D. (2018, March 22). U.S. spending plan include $100 million for autonomous cars...
Retrieved from https://www.reuters.com/article/us-autos-selfdriving-congress/u-s-spending-plan-
include-100-million-for-autonomous-cars-research-testing-idUSKBN1GY074
Sousaml. (2014, October 03). The Rise of Autonomous Driving. Retrieved from
https://whitmanecon101.wordpress.com/2014/10/03/the-rise-of-autonomous-driving/Stick Shift:
Autonomous Vehicles, Driving Jobs and the Future of Work. (n.d.). Retrieved from
http://globalpolicysolutions.org/report/stick-shift-autonomous-vehicles-driving-jobs-and-the-
future-of-work/