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The Accident Externality from Driving

  • Aaron S. Edlin

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

  • Pinar Karaca-Mandic

    (University of California, Berkeley)

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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Paper provided by EconWPA in its series Public Economics with number 0401003.

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Length: 29 pages
Date of creation: 09 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwppe:0401003
Note: 29 pages, Acrobat .pdf
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  1. The Accident Externality from Driving (JPE 2006) in ReplicationWiki

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