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

38 Pages Posted: 23 Sep 2004  

Alma Cohen

Tel Aviv University - Eitan Berglas School of Economics; Harvard Law School; National Bureau of Economic Research (NBER)

Rajeev H. Dehejia

New York University (NYU) - Robert F. Wagner Graduate School of Public Service; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA); CESifo

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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 from 1970-1998, 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%). 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.

Keywords: No-fault laws, compulsory insurance, moral hazard

JEL Classification: G22, J28, K13

Suggested Citation

Cohen, Alma and Dehejia, Rajeev H., The Effect of Automobile Insurance and Accident Liability Laws on Traffic Fatalities. The Journal of Law and Economics, Vol. 47, pp. 357-393, 2004. Available at SSRN: https://ssrn.com/abstract=557922 or http://dx.doi.org/10.2139/ssrn.557922

Alma Cohen (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

Ramat Aviv, Tel Aviv, 69978
Israel

Harvard Law School ( email )

Cambridge, MA 02138
United States
(617) 496-4099 (Phone)
(617) 812-0554 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Rajeev H. Dehejia

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

The Puck Building
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New York, NY 10012
United States

HOME PAGE: http://users.nber.org/~rdehejia/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://users.nber.org/~rdehejia/

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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