Policy Documents

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

Alma Cohen and Rajeev Dehejia –
January 1, 2004

This paper investigates the incentive effects of automobile insurance, compulsoryinsurance 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 for 1970–98, aperiod in which many states adopted compulsory insurance regulations and/or nofaultlaws. Using an instrumental variables approach, we find evidence that automobileinsurance has moral hazard costs, leading to an increase in traffic fatalities. We alsofind that reductions in accident liability produced by no-fault liability laws have ledto an increase in traffic fatalities (estimated to be on the order of 6 percent). Overall,our results indicate that, whatever other benefits they might produce, increases in theincidence of automobile insurance and moves to no-fault liability systems have significantnegative effects on traffic fatalities.