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

Alma Cohen and Rajeev Dehejia ()

Journal of Law & Economics, 2004, vol. 47, issue 2, pages 357-93

Abstract: 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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Journal of Law & Economics is edited by Dennis W. Carlton, Austan Goolsbee, Randall S. Krosner, Douglas Lichtman and Edward A. Snyder

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