Reasearch Notes-Winter 95/96

Accident Costs and Benefit Cost Analysis

Raymond C. Peck & Erin J. Healey

What are the economic and societal costs of traffic accidents? Although the answer to this question depends on how one defines and measures costs, the results of recent studies clearly indicate that the annual costs are staggering even under the most conservative accident cost-measurement criteria. This message is clear from the results of three recent national studies, which produced estimated annual costs due to traffic accidents ranging from 161 to 421 billion (1994 dollars). The corresponding estimates for California range from 13 to 49 billion dollars.

The major source of difference in the costs assigned to traffic accidents by different investigators stems from the costs assigned to fatalities. The two most common approaches to quantifying traffic fatality consequence are: (1) human capital/production loss models, and (2) willingness to pay (WTP)/comprehensive models. Under the former, fatality costs include all direct economic losses associated with an injury or fatality. By far the largest component of this cost is lost future earnings of fatally injured victims. Under the WTP method, estimates reflect the direct and indirect costs incurred by the involved individuals as well as those of the larger society.

In WTP models, injury and fatal accident costs are ultimately defined in terms of what society and individuals are willing to pay to reduce, by given magnitudes, the probability of serious injuries or fatalities. What happens when one uses the more comprehensive willingness to pay approach in estimating accident costs? This question was recently addressed by Ted Miller in a paper published in Accident Analysis and Prevention.

Adjusted to reflect 1994 dollars and accident data, Miller calculated the following per crash cost estimates for various categories of accidents, including those that are never reported to official agencies:

*Property Damage Only
**Accident severity scale of the American Association of Automotive Medicine.

Applying the above estimates to all accidents in 1988, Miller produced an estimate of 333 billion dollars in total accident costs for the U.S., which expands to 421 billion in 1994 dollars.

Advocates of the willingness to pay approach raise a number of objections to production loss models. They point out that the value of a life cannot be adequately represented by direct costs and lost earnings. Even as an economic model, it is deficient since many of the economic costs assigned to the model do not represent quantities which directly impact purely economic indicators, such as the nation's gross domestic product. Another unfortunate implication is that, if applied to the demographics of certain accident populations, the model assigns different cost values to different types of people. For example, males are assigned a higher value than females due to their higher incomes, which leads to the implication that society should be willing to pay more to prevent accidents involving disproportionate numbers of males (e.g. motorcycle accidents) than to prevent traffic accidents in general.

What implications do the above have for making resource allocation decisions affecting drivers in California? First, it is clear that, from a benefit-cost standpoint, countermeasures which reduce accidents have much greater payoff than was formerly believed based on more conservative accident cost models. To illustrate this, we have prepared the following tables showing the average costs of a reportable California traffic accident and the total costs of accidents in California under the two accident cost models. These figures have been adjusted to reflect 1994 dollars (1.04 annual adjustment factor) and the relatively higher cost of living in California (1.098 adjustment factor).

Average Cost of California Accidents by Type

*Note. These costs would be substantially higher for accidents involving negligent and DUI drivers due to a higher percentage of serious and fatal accidents.

Under the WTP model, the average cost of each California accident is approximately $35,000. Note that this value is 3-fold higher than that produced by the more conservative production loss model.

Another commonly used method of placing accident casualty figures in perspective is to compare them with epidemiological statistics on other causes of mortality. The following is taken from a recent National Highway Traffic Safety Administration (NHTSA) monograph entitled "Saving Lives and Dollars" (NHTSA, 1993).

Total Years of US Lives Lost in 1990 by Causes of Premature Death
(Death Prior to Age 65)

Note that motor vehicle deaths rank fourth nationally, accounting for 13.9% of total years of premature life lost from all causes. California's pattern is similar to the above, accounting for 10-13% of the U.S. totals for most of the above categories. Clearly, these data substantiate the premise that traffic accidents are a major public health problem, ranking very close to heart disease as a cause of lost life.

What implications do these costs have on departmental driver safety policies? First and foremost, these data provide compelling justification to search for improved methods of reducing the incidence of accidents. A less obvious implication is that programs having very modest effects in reducing driver accident risk can have enormous pay off in terms of benefit-costs. This conclusion is supported by the high average cost of each accident and the resulting economic benefit assigned to each accident prevented.

Prior evaluations of California's Department of Motor Vehicles Negligent Operator Treatment System (NOTS) indicate that the department spends $750.00 for each reportable accident prevented. From the perspective of either the direct cost model, which produces an estimated average cost of $12,800 per accident, or the WTP model, which produces an estimated average cost of $35,000, the program is clearly cost-beneficial even without consideration of the intangibles associated with injury and death.

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