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The Effect of Automobile Insurance and Accident Liability Laws on Traffic Fatalities

  • Cohen, Alma
  • Dehejia, Rajeev

This paper investigates the incentive effects of automobile insurance, compulsory insurance laws, and no-fault liability laws on driver behavior and traffic fatalities. We analyze a panel of 50 U.S. states and the District of Columbia for 1970-98, a period in which many states adopted compulsory insurance regulations and/or no-fault laws. Using an instrumental variables approach, we find evidence that automobile insurance has moral hazard costs, leading to an increase in traffic fatalities. We also find that reductions in accident liability produced by no-fault liability laws have led to an increase in traffic fatalities (estimated to be on the order of 6 percent). Overall, our results indicate that, whatever other benefits they might produce, increases in the incidence of automobile insurance and moves to no-fault liability systems have significant negative effects on traffic fatalities.

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Article provided by University of Chicago Press in its journal Journal of Law and Economics.

Volume (Year): 47 (2004)
Issue (Month): 2 (October)
Pages: 357-93

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Handle: RePEc:ucp:jlawec:y:2004:v:47:i:2:p:357-93
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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  9. Steven Shavell, 2000. "On the Social Function and the Regulation of Liability Insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 25(2), pages 166-179, April.
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  12. Cummins, J David & Phillips, Richard D & Weiss, Mary A, 2001. "The Incentive Effects of No-Fault Automobile Insurance," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 427-64, October.
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  15. 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.
  16. Christopher J. Ruhm, 1995. "Alcohol Policies and Highway Vehicle Fatalities," NBER Working Papers 5195, National Bureau of Economic Research, Inc.
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  18. 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.
  19. Steven Shavell, 1982. "On Liability and Insurance," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 120-132, Spring.
  20. J.D. Angrist & Guido W. Imbens & D.B. Rubin, 1993. "Identification of Causal Effects Using Instrumental Variables," NBER Technical Working Papers 0136, National Bureau of Economic Research, Inc.
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  22. Viscusi, W. Kip, 1996. "Fatal Tradeoffs: Public and Private Responsibilities for Risk," OUP Catalogue, Oxford University Press, number 9780195102932, March.
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