Automobile Accidents, Tort Law, Externalities, and Insurance: An Economist's Critique

Abstract

Preface – By Todd Litman This is a seminal article concerning traffic accident cost analysis and vehicle insurance pricing reform by Professor William Vickrey, winner of the 1996 Nobel Prize for economics. It describes how to determine the marginal accident costs of vehicle travel, identifies several problems associated with current insurance pricing and compensation practices, and proposes innovative solutions. It recommends distance-based pricing, that is, basing premiums directly on annual vehicle mileage. In recent years there has been increasing interest in this idea, including pilot projects and legislation intended to promote implementation of distance-based insurance pricing.

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