Working Paper: NBER ID: w9602
Authors: Alma Cohen; Rajeev Dehejia
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: automobile insurance; traffic fatalities; no-fault liability; moral hazard
JEL Codes: G22; J28; K13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Compulsory automobile insurance (G52) | Reduction in the proportion of uninsured motorists (G52) |
| Reduction in the proportion of uninsured motorists (G52) | Increase in traffic fatalities (R48) |
| Compulsory automobile insurance (G52) | Increase in traffic fatalities (R48) |
| Moral hazard costs associated with automobile insurance (G52) | Increase in traffic fatalities (R48) |
| No-fault liability laws (K13) | Increase in traffic fatalities (R48) |