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The Accident Externality from Driving

Author

Listed:
  • Aaron S. Edlin

    (University of California, Berkeley & National Bureau of Economic Research)

  • Pinar Karaca-Mandic

    (University of California, Berkeley)

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.

Suggested Citation

  • Aaron S. Edlin & Pinar Karaca-Mandic, 2004. "The Accident Externality from Driving," Public Economics 0401003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwppe:0401003
    Note: 29 pages, Acrobat .pdf
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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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