The accident externality from driving

Aaron S. Edlin, Pinar Karaca-Mandic

    Research output: Contribution to journalArticlepeer-review

    55 Scopus citations


    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 the increase in traffic density from a typical additional driver increases total statewide insurance costs of other drivers by $1,725-$3,239 per year, depending on the model. High-traffic density states have large economically and statistically significant externalities in all specifications we check. 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 $66 billion annually in California alone, more than all existing California state taxes during our study period, and over $220 billion per year nationally.

    Original languageEnglish (US)
    Pages (from-to)931-955
    Number of pages25
    JournalJournal of Political Economy
    Issue number5
    StatePublished - Oct 2006

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