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Accident damages from large & small vehicles

Tim Lambert at Deltoid discusses the idea of taxing heavy vehicles more (or giving light vehicles a tax concession) on the grounds that they do more (less) damage in collisions.  I support the sentiment of this proposal although drawing on my earlier post on accident externalities the taxes should ideally operate through insurance premiums.

When two cars of equal size collide the total damage is approx 2D where D is the damage to either car. Since (in the US at least) about 70% of accidents are two car collisions this suggests an average traffic accident externality of around 70%. So people drive excessively given the risks they impose on others.  The first best solution to this is to tax insurance premiums to capture this externality.  People will drive less and the externality gets internalised.

However if a big car hits a small car the big car gets off lightly and the little car cops it severely. Now the big car imposes a really large accident externality and the small car a much smaller one.  Internalising the externality by encouraging less driving will occur by insurance premiums on big cars being really punitively taxed and on light cars being lightly taxed.

These types of taxes are not very popular and so are often approximated by using distance related insurance charging.  The same principle applies – if you drive a weighty 4-wheel drive or a B-double truck your premium per kilometre should be much higher than if you are driving a small car.  Of course the fixed charge per kilometre also depends on the characteristics of the driver.  A young male should pay proportionately more.  Finally, if you are worried about high taxes inducing people to not insure a very rough approximation to the scheme would be to levy different registration charges by weight of vehicle (as is currently done) then charge a compulsory insurance levy via a premium on fuels.  This isn’t as good since people respond to the levy by using more fuel efficient cars – not the externality targeted here – rather than driving less.

3 comments to Accident damages from large & small vehicles

  • conrad

    I thought this was already at least partly reflected in the private part of car insurance.

    “young male should pay proportionately more”

    This is always a fun topic — the fact that we are allowed to discriminate against some groups but not others, and that this distinction appears relatively arbitrary. Why do fat people and females of breeding age not have to pay more for health insurance? How come only older people have to pay more, or why do older females, who have less health complaints than older males, pay the same amount? etc.

    I think the real problem is that groups that complain a lot get special status versus those that don’t, and if you wanted to tax dangerous cars more, you would get a lot of complaints and no politician would have the will to do it.

  • hc

    Young men have a markedly higher incidence of traffic accidents.

  • conrad

    HC — I’m aware of that. I’m just pointing out there is no systematic way of allowing/disallowing discrimination, and obviously people think that car size is an area we shouldn’t discriminate. Beats me why.

    Obese people, for example, use more medical services than fit people, but we don’t charge/tax them more. This suggest that it is not okay to discriminate against the obese (which is generally a voluntary condition), but it is okay to discriminate againt being young and male (which isn’t a voluntary condition).

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