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The Accident Externality from Driving

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Author Info
Aaron S. Edlin
Pinar Karaca-Mandic

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Abstract

We estimate auto accident externalities (more specifically insurance externalities) using panel data on state-average insurance premiums and loss costs. Externalities appear to be substantial in traffic-dense states: in California, for example, we find that the increase in traffic density from a typical additional driver increases total statewide insurance costs of other drivers by $1,725–$3,239 per year, depending on the model. High–traffic density states have large economically and statistically significant externalities in all specifications we check. In contrast, the accident externality per driver in low-traffic states appears quite small. On balance, accident externalities are so large that a correcting Pigouvian tax could raise $66 billion annually in California alone, more than all existing California state taxes during our study period, and over $220 billion per year nationally.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 114 (2006)
Issue (Month): 5 (October)
Pages: 931-955
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Handle: RePEc:ucp:jpolec:v:114:y:2006:i:5:p:931-955

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  2. Aaron S. Edlin, 1999. "Per-Mile Premiums for Auto Insurance," Law and Economics 9902002, EconWPA. [Downloadable!]
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  3. Steven D. Levitt & Jack Porter, 2001. "How Dangerous Are Drinking Drivers?," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1198-1237, December. [Downloadable!] (restricted)
  4. Aaron S. Edlin & Pinar Karaca-Mandic, 2004. "The Accident Externality from Driving," Public Economics 0401003, EconWPA. [Downloadable!]
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  5. Jerry Green, 1976. "On the Optimal Structure of Liability Laws," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 553-574, Autumn. [Downloadable!] (restricted)
  6. Ruhm, Christopher J., 1996. "Alcohol policies and highway vehicle fatalities," Journal of Health Economics, Elsevier, vol. 15(4), pages 435-454, August. [Downloadable!] (restricted)
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  7. Keeler, Theodore E, 1994. "Highway Safety, Economic Behavior, and Driving Environment," American Economic Review, American Economic Association, vol. 84(3), pages 684-93, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Schrage, Andrea, 2006. "Traffic congestion and accidents," Regensburger Diskussionsbeiträge zur Wirtschaftswissenschaft 419, University of Regensburg, Department of Economics. [Downloadable!]
  2. Alma Cohen & Rajeev Dehejia, 2003. "The Effect of Automobile Insurance and Accident Liability Laws in Traffic Fatalities," NBER Working Papers 9602, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Aaron Edlin & Pinar Karaca-Mandic, 2003. "The Accident Externality from Driving," Department of Economics, Working Paper Series 1058, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  4. Thomas Leonard, 2008. "Robert H. Frank, Falling behind: how rising inequality harms the middle class," Constitutional Political Economy, Springer, vol. 19(2), pages 158-164, June. [Downloadable!] (restricted)
  5. Parry, Ian, 2005. "Is Pay-As-You-Drive Insurance a Better Way to Reduce Gasoline than Gasoline Taxes?," Discussion Papers dp-05-15, Resources For the Future. [Downloadable!]
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