A Prospect Theory Analysis of California’s Initiatives in Implementation of the ZEV Mandate

In 1990, the state of California passed the pioneering mandate on zero emission vehicles (ZEV). This technology-forcing regulation is aimed at improvement of air quality and protection of public health from the adverse effects of air pollutants from automobiles. Facing severe opposition from the auto industry, the mandate has been revised a number of times, most recently in 2003, whereby the requirement for ZEVs have been made to align with the pace of technology development. Review of strategies used in implementation of the mandate has revealed greater emphasis on the economic incentives for rather than on environmental merits of ZEVs. Using prospect theory as the framework for analysis, the reasons have been explored. The findings of the study help us to understand how decisions are made with respect with to deviations from a mental anchor point and through the process of evaluation of losses and gains.