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The Accident Externality from Driving

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Author Info
Aaron Edlin (School of Law and Economics Dept., University of California, Berkeley)
Pinar Karaca-Mandic (University of California, Berkeley)

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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 a typical additional driver increases the total of other people's insurance costs by $2231 per year. In such states, an increase in traffic density dramatically increases aggregate insurance premiums and loss costs. 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 $45 billion annually in California alone, and over $140 billion nationally. The extent to which this externality results from increases in accident rates, accident severity or both remains unclear. It is also not clear whether the same externality pertains to underinsured accident costs like fatality risk.

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Publisher Info
Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number 1058.

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Date of creation: 09 Jul 2003
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Handle: RePEc:cdl:econwp:1058

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Related research
Keywords: insurance; auto accidents; externalities;

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This paper has been announced in the following NEP Reports: 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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(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. 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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  2. Schrage, Andrea, 2006. "Traffic congestion and accidents," Regensburger Diskussionsbeiträge zur Wirtschaftswissenschaft 419, University of Regensburg, Department of Economics. [Downloadable!]
  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!]
    Other versions:
  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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