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

  • Alma Cohen
  • Rajeev Dehejia

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 from 1970-1998, 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%). 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9602.

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Date of creation: Apr 2003
Date of revision:
Publication status: published as Cohen, Alma and Rajeev Dehejia. "The Effect Of Automobile Insurance and Accident Liability Laws On Traffic Fatalities," Journal of Law and Economics, 2004, v47(2,Oct), 357-393.
Handle: RePEc:nbr:nberwo:9602
Note: LE PE
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  18. 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.
  19. Aaron S. Edlin & Pinar Karaca-Mandic, 2006. "The Accident Externality from Driving," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 931-955, October.
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