Title

On the road again: traffic fatalities and auto insurance minimums

DOI

10.3326/PSE.42.1.3

Document Type

Journal Article

Publication Date

1-1-2018

Publication Title

Public Sector Economics

Volume

42

Issue

1

First Page

46

Last Page

65

Keywords

Auto insurance, Minimums, Moral hazard, Traffic fatalities

Abstract

Prior research on policy-induced moral hazard effects in the auto insurance market has focused on the impact of compulsory insurance, no-fault liability, and tort liability laws on traffic fatalities. In contrast, this paper examines the moral hazard effect of a previously overlooked policy variable: minimum auto insurance coverage. We hypothesize that state-mandated auto insurance minimums may “over-insure” some drivers, lowering their incentives to drive carefully. Using a longitudinal panel of American states from 1982 to 2006, we find that policyinducedincreases in auto insurance minimums are associated with higher traffic fatality rates, ceteris paribus.

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