The Economics of Regulating Cellular Phones in Vehicles

43 Pages Posted: 21 Dec 1999

See all articles by Robert W. Hahn

Robert W. Hahn

Technology Policy Institute; University of Oxford, Smith School

Paul C. Tetlock

Columbia Business School - Finance

Date Written: October 1999


Regulation of the use of cellular phones by individuals while driving is now commonplace outside the United States and has been proposed in a number of jurisdictions in the United States. There is growing concern that using cellular phones while driving leads to increases in accidents and fatalities. This paper provides an economic analysis of regulatory options for addressing cellular phone usage by drivers of vehicles. While large uncertainties surrounding both benefits and costs exist, a key conclusion is that banning drivers from using cellular phones is a bad idea. Our best estimate is that the costs of a ban are likely to exceed benefits by more than $20 billion annually. Less intrusive regulation, such as requiring the use of a hands-free device that would allow a driver to use both hands for steering also is not likely to be economically justified.

We are doubtful that the net benefits from a ban on drivers' using hand-held phones or a mandate requiring the use of hands-free devices would be positive for three reasons. First, the results of our quantitative benefit-cost analysis suggest that costs are likely to exceed benefits. Second, our best estimates of accidents and fatality reductions do not take into account how drivers would alter their behavior in response to regulation. If regulations were enforced, drivers may simply switch to other risky behaviors. Thus, the net reductions in accidents and fatalities are likely to be overstated, which means the benefits of regulatory interventions could be quite small. Third, the technology is already moving in the direction of voice activation, which is likely to reduce risks.

Instead of regulating now, the federal government and the states should collect more systematic information on the relationship between cellular phone use by individuals while driving and accidents. Specifically, governments should attempt to improve estimates of the number of accidents and fatalities associated with cellular phone use. It is possible that accidents are underestimated now. Moreover, an argument can be made that accidents will increase more than linearly as more drivers use cellular phones in vehicles. The federal government should also assess the benefits and costs of introducing promising new technologies that could reduce the risks of accidents associated with drivers' using cellular phones in vehicles.

Keywords: cellular phones, driving, individuals, accidents, fatalities

JEL Classification: L51, H00

Suggested Citation

Hahn, Robert W. and Tetlock, Paul C., The Economics of Regulating Cellular Phones in Vehicles (October 1999). Available at SSRN: or

Robert W. Hahn (Contact Author)

Technology Policy Institute ( email )

1401 Eye St. NW
Suite 505
Washington, DC 20005
United States

University of Oxford, Smith School ( email )

United Kingdom

Paul C. Tetlock

Columbia Business School - Finance ( email )

3022 Broadway
New York, NY 10027
United States


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