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The Incentive Effects of No Fault Automobile Insurance

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  • J. David Cummins
  • Mary A. Weiss
  • Richard D. Phillips

Abstract

This paper presents a theoretical and empirical analysis of the effects of no fault automobile insurance on accident rates. As a mechanism for compensating the victims of automobile accidents, no fault has several important advantages over the tort system. However, by restricting access to tort, no fault may weaken incentives for careful driving, leading to higher accident rates. We conduct an empirical analysis of automobile accident fatality rates in all U.S. states over the period 1982-1994, controlling for the potential endogeneity of no fault laws. The results support the hypothesis that no fault is significantly associated with higher fatal accident rates than tort.

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Bibliographic Info

Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 99-38.

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Date of creation: Aug 1999
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Handle: RePEc:wop:pennin:99-38

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  1. Ian Mcewin, R., 1989. "No-fault and road accidents: Some Australasian evidence," International Review of Law and Economics, Elsevier, vol. 9(1), pages 13-24, June.
  2. Landes, Elisabeth M, 1982. "Insurance, Liability, and Accidents: A Theoretical and Empirical Investigation of the Effect of No-Fault Accidents," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 49-65, April.
  3. Peltzman, Sam, 1975. "The Effects of Automobile Safety Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 677-725, August.
  4. Phillip Farrell & Victor R. Fuchs, 1981. "Schooling and Health: The Cigarette Connection," NBER Working Papers 0768, National Bureau of Economic Research, Inc.
  5. Devlin, Rose Anne, 1990. "Some welfare implications of no-fault automobile insurance," International Review of Law and Economics, Elsevier, vol. 10(2), pages 193-205, September.
  6. J. David Cummins & Sharon Tennyson, 1992. "Controlling Automobile Insurance Costs," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 95-115, Spring.
  7. Lave, Charles A, 1985. "Speeding, Coordination, and the 55 MPH Limit," American Economic Review, American Economic Association, vol. 75(5), pages 1159-64, December.
  8. Cummins, J David & Tennyson, Sharon, 1996. "Moral Hazard in Insurance Claiming: Evidence from Automobile Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(1), pages 29-50, January.
  9. Robinson, Chris, 1989. "The Joint Determination of Union Status and Union Wage Effects: Some Tests of Alternative Models," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 639-67, June.
  10. Lee, Lung-Fei, 1978. "Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 415-33, June.
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Citations

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Cited by:
  1. Georges Dionnne & Pierre-Carl Michaud & Jean Pinquet, 2012. "A Review of Recent Theoretical and Empirical Analyses of Asymmetric Information in Road Safety and Automobile Insurance," Cahiers de recherche 1204, CIRPEE.
  2. Daniel P. Kessler & Daniel L. Rubinfeld, 2004. "Empirical Study of the Civil Justice System," NBER Working Papers 10825, National Bureau of Economic Research, Inc.
  3. Neri, Marcelo Cortes, 2007. "The State of the Youth: Prisons, Drugs and Car Crashes," Economics Working Papers (Ensaios Economicos da EPGE) 661, FGV/EPGE Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil).
  4. Vereeck, Lode & Vrolix, Klara, 2007. "The social willingness to comply with the law: The effect of social attitudes on traffic fatalities," International Review of Law and Economics, Elsevier, vol. 27(4), pages 385-408, December.
  5. Fenn, Paul & Gray, Alastair & Rickman, Neil, 2007. "Liability, insurance and medical practice," Journal of Health Economics, Elsevier, vol. 26(5), pages 1057-1070, September.
  6. 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.
  7. Jonathan Yoder, 2008. "Liability, Regulation, and Endogenous Risk: The Incidence and Severity of Escaped Prescribed Fires in the United States," Journal of Law and Economics, University of Chicago Press, vol. 51(2), pages 297-325, 05.
  8. Steven Shavell, 2005. "Liability for Accidents," NBER Working Papers 11781, National Bureau of Economic Research, Inc.

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