Comparing alternative policies to reduce traffic accidents

This paper derives and implements formulas for the welfare effects of uniform mileage taxes, gasoline taxes, per-mile insurance premiums, and mileage taxes differentiated across vehicle and driver groups, for reducing the external costs of passenger vehicle accidents. The (average) external accident cost is estimated at 2.2-6.6 cents per mile. Accidents costs differ substantially across driver groups, but only moderately across vehicles groups. Annual welfare gains from a mileage tax equal to marginal external costs for each driver/vehicle group are $9.4 billion in the benchmark case. The uniform mileage tax and per-mile insurance reform can achieve 76 and 65% of this welfare gain, respectively, while the gasoline tax can achieve only 28% of the welfare gain. Unlike other policies, the gasoline tax induces costly improvements in average fleet fuel economy that have little effect on reducing external costs. (C) 2004 Elsevier Inc. All rights reserved.