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On the road again: traffic fatalities and auto insurance minimums

Author

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  • Pavel A. Yakovlev

    (Department of Economics and Finance, Duquesne University, Pittsburgh, USA)

  • Christina M. Orr-Magulick

    (Gordon Rees Scully Mansukhani, Pittsburgh, USA)

Abstract

Prior research on policy-induced moral hazard effects in the auto insurance market has focused on the impact of compulsory insurance, no-fault liability, and tort liability laws on traffic fatalities. In contrast, this paper examines the moral hazard effect of a previously overlooked policy variable: minimum auto insurance coverage. We hypothesize that state-mandated auto insurance minimums may „over-insure“ some drivers, lowering their incentives to drive carefully. Using a longitudinal panel of American states from 1982 to 2006, we find that policy-induced increases in auto insurance minimums are associated with higher traffic fatality rates, ceteris paribus.

Suggested Citation

  • Pavel A. Yakovlev & Christina M. Orr-Magulick, 2018. "On the road again: traffic fatalities and auto insurance minimums," Public Sector Economics, Institute of Public Finance, vol. 42(1), pages 45-65.
    • Handle: RePEc:ipf:psejou:v:42:y:2018:i:1:p:45-65
    DOI: 10.3326/pse.42.1.3
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    More about this item

    Keywords

    traffic fatalities; auto insurance; minimums; moral hazard;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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