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Valuing Accidents

Traffic accidents (also called crashes or collisions) can impose various types of costs:

  • Property damages
  • Emergency services
  • Traffic delays
  • Medical and rehabilitation care
  • Lost productivity and disability compensation costs
  • Pain, suffering and grief

Some of these are market (also called economic) costs, which involve goods commonly traded in competitive markets such as vehicles and repair services. Others are non-market costs, which involve goods not normally traded such as pain, suffering and grief. In some crashes a portion of non-market costs are compensated, which makes them market costs, for example, if insurance pays for pain and suffering damages. Comprehensive evaluation should include all of these categories of costs.

Crash cost analysis involves two steps. First, quantify physical impacts, such as the number of crashes that occur, the number and severity of vehicle damages, human injuries, disabilities and deaths. Second, monetize (measure in monetary values) these impacts, based on techniques described below. 

Most transportation agencies have established standard values to be assigned to human injuries and deaths. These should generally be used in economic evaluation. However, these standard values sometimes only include "market" (or "economic") values and so do not reflect the full value that people place on an incremental change in safety, as described below. More recent research tends to place a higher value on crash costs and therefore safety benefits. It may therefore be useful to report the official values plus more comprehensive estimates that include non-market values when evaluating transportation projects.

Monetizing Human Life And Health

Various techniques are used to monetize human health and life (EDRG 2007; Litman 2009; van Essen, et al. 2007). 

Human life is not a commodity: most people place virtually infinite value on their lives (they would not willingly die for any size payment), but many decisions involve tradeoffs between marginal changes in risk and money. For example, vehicle purchasers must sometimes decide whether to pay extra for safety equipment, such as air bags, that provide small safety gains. Such tradeoffs indicate the value consumers place on marginal changes in risk, described as willingness-to-pay or willingness-to-accept. For example, if consumers pay an average of $100 for optional safety equipment that reduces their chances of crash injury by one millionth, then other strategies that provide equal safety benefits for the same financial investment can be considered cost effective.

Willingness-to-pay usually results in lower values than willingness-to-accept due to budget constraints. For example, consumers may value increased safety but cannot afford to pay for it, so willingness-to-pay values are low, yet they would be unwilling to accept reduced safety in exchange for a financial reward, so their willingness-to-accept values are relatively high. Assuming that people have a right to live without injury from others, crash cost values should be based on willingness-to-accept, that is, the compensation a person would require before he or she would volunteer to experience such damages.

Society’s willingness-to-pay to avoid crash damages tends to be greater than what is reflected by simply summing crash compensation or vehicle insurance payments, since many crash damages (particularly for nonmarket damages such as pain, suffering and lost-quality of life) are not fully compensated. For example, if a person with no dependents dies in a crash, minimal financial compensation may be paid. Similarly, injuries to drivers considered legally responsible for a crash (such as a drunk driver) are often uncompensated, yet society still considers these lives to have value and devotes resources to preventing such crashes and reducing such injuries. Many jurisdictions have injury claim limitations, and various types of no-fault insurance systems which effectively limit crash claim payments below what the legal system would otherwise deem fair compensation, in order to make vehicle insurance more affordable. Willingness to pay to avoid traffic fatalities is generally much greater than average crash fatality compensation.

Rather than just measuring human deaths, some studies evaluate risks based on Potential Years of Life Lost (PYLL) or Disability Adjusted Life Years (DALYs), which account for age differences in when people are harmed. Vehicle crashes tend to injure people at a younger age than other common health risks such as heart disease and cancer (the average age of death from motor vehicle crash is 39 years, compared with 71 for all causes), and so impose a relatively high cost per death or disability.

Two general perspectives are used in crash cost studies, reflecting the scope of impacts that are considered:

·        The Human Capital method measures only market costs (property damage, medical treatment, and lost productivity). This typically places the value of saving a human life at $0.5-1 million, with lesser values for injuries.

·         The Comprehensive approach adds non-market costs, including pain, grief, and reduced quality of life, as reflected by people’s willingness-to-pay for increased safety (i.e., reduced risk of crashes and reduced crash damages), or willingness-to-accept increased crash risk and damages. It is a more appropriate measure of the true cost to society of crashes, and the appropriate value to use when assessing crash prevention. 

There is some variability in these cost values since analysis results depend on how research is conduced and the economic and demographic attributes of the population under consideration (for example, values are generally considered higher for people in the prime of life than for people who are older and so can expect to live fewer years). Blincoe, et al. state that the value of a fatality lies in the range of $2-7 million, and assign a “working value” of $3,366,388. This suggests that a reasonable range is from about 40% lower to about 200% higher than their assigned values, at least for crashes involving significant non-market (quality of life) damages.


Crash Cost Distribution

How crash costs are distributed is an important issue for some types of analysis. Individual actions and public policies sometimes shift crash costs from one group to another. For example, motorists who purchase larger vehicles may increase their own safety, but increase risks to other road users. Public policies may reduce compensation provided to crash victims, which reduces insurance costs but increases uncompensated damages borne by individuals. It is important to track these economic transfers.

Crash costs can be divided into internal (damages borne by the individual vehicle user), external (damages and risks borne by other road users), and insurance compensation (damages compensated by insurance). Insurance compensation costs are external at the individual level but internal to premium payers as a group. When non-market costs such as pain or lost quality of life are compensated by insurance or litigation, they become market costs. As mentioned earlier, such compensation rates are generally not a good indication of the full value of reducing crash damages. The more appropriate indicator of non-market crash costs is individuals’ willingness-to-accept marginal changes in crash risk.The table below indicates the distribution of various crash costs.

Crash Cost Categories

Distribution

Market

Non-Market

 

Internal

Safety equipment expenditures.

Uncompensated property damages, lost income and medical treatment costs to users.

Insurance deductibles.

Uncompensated pain and lost quality of life to crash victims.

 

External

Uncompensated property damages, lost income and medical costs to nonusers.

Emergency response and crash prevention expenditures.

Uncompensated pain and lost quality of life borne by nonusers. Uncompensated grief to victims’ loved ones. Reduced nonmotorized mobility.

Insurance

Property damage, lost income and medical treatment compensated by insurers.

Pain, grief and lost quality of life compensated by insurers.

This table indicates how various crash costs are categorized. Some are market, others are non-market. Some are internal, others external. Insurance compensation costs are external to individuals, but internal to motorists as a group.

 

When crashes involve different vehicle types, such as pedestrians hit by automobiles or automobiles hit by trains, it is common to consider the larger vehicle responsible for most crash costs, since it imposes greater damages, regardless of which driver is legally responsible. Elvik (1994) defines three types of crash externalities:

·         System externalities: crash damage costs impose on society: property damages, emergency and medical services, lost productivity, etc.

·         Physical injury externalities: costs larger vehicles impose on smaller vehicles and pedestrians.

·         Traffic volume externalities: marginal changes in crash risk from changes in traffic density.

 

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