The Accident Externality from Driving

Aaron Edlin () and Pinar Karaca-Mandic
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Pinar Karaca-Mandic: University of California, Berkeley

Public Economics from EconWPA

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.

JEL-codes: H2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea
Date: Written 2004-01-09
Note: 29 pages, Acrobat .pdf
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http://129.3.20.41/eps/pe/papers/0401/0401003.pdf (application/pdf)

Related works:
Working Paper: The Accident Externality from Driving (2003)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwppe:0401003

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