Arnold Kling  

The Cost of Accidents

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Aaron S. Edlin and Pinar Karaca Mandic write,


This study is an attempt to provide better estimates of the size (and sign) of the aggregate accident externality from driving. To begin, we choose a dependent variable, insurer costs, that is dollar-denominated and captures both accident frequency and severity; we also analyze insurance premiums as a dependent variable. We are concerned with aggregate effects across the full spectrum of driving in a given state. Our central question is whether one person’s driving increases other people’s accident costs.

They find a large externality, and they advocate a large tax.

It's worth thinking about the costs of auto accidents. I think that the non-pecuniary costs of dealing with insurance adjusters, body shops, and so on, or fairly significant. Of course, I should internalize some of that and drive less frequently and more carefully because of it (we're talking "in theory," right?).

But when I think of externalities from auto accidents, I think of the huge traffic jam I was in this morning, due to an accident.

How much would you pay other people to stay off the road? Are tolls the answer?

Thanks to Greg Mankiw for the pointer.


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COMMENTS (3 to date)
Bill Conerly writes:

We should learn from the workers' compensation system. Deregulation in that market has been a key factor in bringing down the accident rate, by internalizing to employers the benefit of safe working conditions. Automobile insurance seems to be pretty backwards in comparison. WC insurance costs per hour worked or dollar of payroll, but State Farm doesn't really know how many miles I drive. WC varies with the type of job, and even with time one worker spends on different activities. (A salesman who spends 10 hours a week driving to appointments costs more than a salesman who only spends 5 hours a week driving.) But State Farm doesn't know whether I'm on a relatively safe interstate or a relatively dangerous 2-lane country highway.

Some of the solution is regulatory, some technological.

CG writes:

My belief, based just on observation, is that a small percentage of drivers must be responsible for a disproportionate number of accidents. I would love to see statistics (and they must be out there) about this. My husband, an insurance defense lawyer, guesses that most of the litigants he deals with have had 2 or more previous accidents, but as that is only a sample from what goes to litigation, I don't know how to judge it. The externality cost is probably dependent on miles driven, sure, but what about how aggressively a person drives? And is that possible to measure? I like to believe that I have had no accidents in 17 years of driving due to my cautious ways, but is it more likely that I am just lucky?

Brandon Walker writes:

First i think that more incentivies should be given by insuracne companies for safer driving techniques. Secondly i think that the drivers education programs has signifcantly failed recently, there are people on the road that has no business driving a vehicle. The last idea i purpose is what about putting an age limit on operating a vehicle, if you are over 80 years old you need to be assisted when driving? I think that the driving situations will only get worse.

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