The Accident Externality from Driving

38 Pages Posted: 22 Jul 2003

See all articles by Aaron S. Edlin

Aaron S. Edlin

University of California at Berkeley; National Bureau of Economic Research (NBER)

Pinar Karaca-Mandic

RAND Corporation

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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.

Composed using speech recognition software. Misrecognized words are common.

Keywords: insurance, auto accidents, externalities

Suggested Citation

Edlin, Aaron S. and Karaca-Mandic, Pinar, The Accident Externality from Driving. UC Berkeley Public Law Research Paper No. 130. Available at SSRN: https://ssrn.com/abstract=424244 or http://dx.doi.org/10.2139/ssrn.424244

Aaron S. Edlin (Contact Author)

University of California at Berkeley ( email )

Dept of Economics 549 Evans Hall #3880
Berkeley, CA 94720
United States
510-642-4719 (Phone)
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Pinar Karaca-Mandic

RAND Corporation ( email )

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Santa Monica, CA 90407
United States

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