An Empirical Study to Estimate the Economic Effects of the Introduction of a Periodical Technical Inspection (PTI) for Motor Vehicles in Punjab (Pakistan)

Abstract

In 2016, the government of Punjab (Pakistan) established a new system for inspecting road vehicles. The inspection system tests the roadworthiness, noise level, and emissions from the vehicles. These test metrics have further economic benefits that will be analyzed throughout the study. As the main aim of this study, we provide an economic impact analysis of the introduction of a periodical technical inspection (PTI) system that acts as a basis for political decision-making. We used a cost-benefit analysis (CBA) to assess the economic impact of the introduction of a periodical technical inspection (PTI) in Punjab. With the CBA, the economic benefits and costs can be empirically weighed against each other to provide a precise result for policymakers. Such results could help in decision-making regarding new policies, such as whether to introduce a new system or not. This is especially important for the region of Punjab since it has a large population and a substantial number of cars which lead to many fatal car accidents. A primary reason for the numerous fatal accidents is the poor quality of the present vehicle stock. Punjab lacks a regulatory body that systematically ensures that all vehicles on the road are safe and of good quality. Therefore, an effective approach to reducing fatalities would be the introduction of a systematic inspection body that controls vehicle quality. The objective of this study is to assess the feasibility and effectiveness of introducing a PTI in the region of Punjab. To this end, we calculate a benefit-cost ratio and determine whether the PTI would have a positive economic impact on the region. Throughout the analysis, cutting-edge empirical methodologies are used to provide a structured approach for precise assessment of the benefit-cost ratio related to the introduction of a PTI system. To weigh in on the benefits and costs, we used a CBA analysis. This method is commonly used in welfare economics to find out if certain measures are socially desirable. The overall result of the CBA is a benefit-cost ratio (BCR). Ratios greater than one prove that the system implementation is profitable for society. Such an analysis provides an empirically supported result that can be used throughout the decision-making process in the public sector. According to our analysis, the implementation of a PTI together with an emission test would yield a benefit-cost ratio of 12.45. A benefit-cost ratio of 10 means that one dollar invested in the PTI results in an economic benefit of 10 dollars in Punjab. The introduction of a PTI system would have a positive impact on the economic welfare of Punjab and is therefore socially desirable. The empirical results show a high degree of statistical significance (p = 0.001). Due to this, the coefficients of the cause-effect relationships can be interpreted unambiguously. Avoiding an estimated 198 fatalities would enable accident-related savings of US$ 11,616,462. Moreover, 382 fewer injured people would lessen the financial burden on the state by another US$ 1,568,874. The total estimated emission savings would amount up to $2,647,966.87. Altogether, the benefits arising from the implementation of PTI would equate to US$ 15,833,302,9.We calculate that the sum of all inspection fees (for a total of 179,977 vehicles inspected) is to be US$ 1,271,460. When leveraged against each other, the savings and fees lead to a benefit-cost ratio (BCR) of 12.45. The implementation of PTI would have a significant and measurable effect on the reduction of road accidents in Punjab. The list of potential benefits is not exhaustive, as other effects, like noise reduction, could not be considered due to missing data. Despite considering a limited list of benefits, we have demonstrated a high BCR which speaks in favour of the introduction of PTI and its favourable impact on Punjab’s economic welfare.