The Cost of Accidents
By Arnold Kling
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.