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On the road again: traffic fatalities and auto insurance minimums
Pavel A. Yakovlev* 
Christina M. Orr-Magulick*
Christina M. Orr-Magulick
Affiliation: Gordon Rees Scully Mansukhani, Pittsburgh, USA
 0000-0001-8420-0648
Article | Year: 2018 | Pages: 45 - 65 | Volume: 42 | Issue: 1 Received: May 22, 2017 | Accepted: November 15, 2017 | Published online: March 8, 2018
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FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
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State
|
Per
Person Liability
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Per
Accident Liability
|
Property
Liability
|
State
|
Per
Person Liability
|
Per
Accident Liability
|
Property
Liability
|
|
Alabama
|
20
|
40
|
10
|
Montana
|
25
|
50
|
10
|
|
Alaska
|
50
|
100
|
25
|
Nebraska
|
25
|
50
|
25
|
|
Arizona
|
15
|
30
|
10
|
Nevada
|
15
|
30
|
10
|
|
Arkansas*
|
25
|
50
|
25
|
New
Hampshire
|
25
|
50
|
25
|
|
California
|
15
|
30
|
5
|
New
Jersey
|
15
|
30
|
5
|
|
Colorado
|
25
|
50
|
15
|
New
Mexico
|
25
|
50
|
10
|
|
Connecticut
|
20
|
40
|
10
|
New
York*
|
25
|
50
|
10
|
|
Delaware*
|
15
|
30
|
10
|
North
Carolina
|
30
|
60
|
25
|
|
Florida
|
10
|
20
|
10
|
North
Dakota
|
25
|
50
|
25
|
|
Georgia*
|
25
|
50
|
25
|
Ohio
|
13
|
25
|
8
|
|
Hawaii
|
20
|
40
|
10
|
Oklahoma*
|
25
|
50
|
25
|
|
Idaho
|
20
|
50
|
15
|
Oregon
|
25
|
50
|
10
|
|
Illinois
|
20
|
40
|
15
|
Pennsylvania
|
15
|
30
|
5
|
|
Indiana
|
25
|
50
|
10
|
Rhode
Island
|
25
|
50
|
25
|
|
Iowa
|
20
|
40
|
15
|
South
Carolina*
|
15
|
30
|
10
|
|
Kansas
|
25
|
50
|
10
|
South
Dakota
|
25
|
50
|
25
|
|
Kentucky
|
25
|
50
|
10
|
Tennessee
|
25
|
50
|
10
|
|
Louisiana
|
10
|
20
|
10
|
Texas
|
20
|
40
|
15
|
|
Maine
|
50
|
100
|
25
|
Utah*
|
25
|
50
|
15
|
|
Maryland
|
20
|
40
|
10
|
Vermont
|
25
|
50
|
10
|
|
Massachusetts*
|
20
|
40
|
5
|
Virginia
|
25
|
50
|
20
|
|
Michigan
|
20
|
40
|
10
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Washington
|
25
|
50
|
10
|
|
Minnesota*
|
30
|
60
|
10
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West
Virginia
|
20
|
40
|
10
|
|
Mississippi*
|
25
|
50
|
25
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Wisconsin
|
25
|
50
|
10
|
|
Missouri
|
25
|
50
|
10
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Wyoming
|
25
|
50
|
20
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* States that changed auto insurance minimums during the 1982-2006 period according to our research.
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Variable
Name
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Variable
Description
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Mean (Std. Dev.)
|
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Traffic fatality rate
(FARS, 2009)
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Traffic fatalities divided by
state population measured in thousands.
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0.18
(0.06)
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Auto insurance minimum
(State-by-State Insurability Requirements, 2009)
|
Per accident minimum
liability amount (in thousands of dollars) adjusted for inflation using GDP
deflator.
|
59.36
(23.53)
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|
Young population share
(Ponicki, 2004)
|
Share of people 18-24 years
of age in state population.
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0.11
(0.01)
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Old population share
(Ponicki, 2004)
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Share of people 65 and older
in state population.
|
0.12
(0.02)
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|
Minimum drinking age
(Ponicki, 2004)
|
Minimum legal drinking age
for spirits in years.
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20.59
(0.93)
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Gasoline price
(EIA, 2009)
|
Per gallon gasoline price in
constant dollars.
|
1.90
(0.41)
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Income per capita
(BEA, 2009)
|
Real GDP/total population (in
thousands).
|
39.74
(10.38)
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Population density
(U.S. Census Bureau, 2009)
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Total population/square mile
of land.
|
0.17
(0.24)
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Alcohol consumption
(The Beer Institute, 2008)
|
Alcohol consumption in gallons
per capita for state population over the age of 17.
|
2.39
(0.56)
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Precipitation
(NCDC, 2017; 2017a)
|
Average weighted annual rain
and snow fall in inches.
|
3.09
(1.26)
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Air temperature
(NCDC, 2017; 2017a)
|
Average weighted annual air
temperature in Fahrenheit.
|
52.50
(7.61)
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Speed limit
(IIHS, 2017)
|
Average (rural and urban)
speed limit in miles per hour.
|
60.03
(6.15)
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Crime rate
(Bureau of Justice Statistics, 2017)
|
Overall crime rate.
|
0.05
(0.01)
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Primary seatbelt law
(NHTSA, 2009)
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Dummy variable: 1 if state
has a primary seatbelt law, 0 if otherwise.
|
0.22
(0.42)
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Compulsory insurance
(Cohen and Dehejia, 2004)
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Dummy variable=1 if state has
compulsory insurance (0 otherwise).
|
0.73
(0.44)
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No-fault liability
(Cohen and Dehejia, 2004)
|
Dummy variable=1 if state has
no-fault liability law (0 otherwise).
|
0.28
(0.45)
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1 FARS (2009) 2 Ponicki (2004) 3 EIA (2009) 4 BEA (2009) 5 U.S. Census Bureau (2009) 6 State-by-State Insurability Requirements (2009) 7 The Beer Institute (2008) 8 NCDC (2017, 2017a) 9 IIHS (2017) 10 Bureau of Justice Statistics (2017) 11 NHTSA (2009) 12 Cohen and Dehejia (2004)
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Estimator
standard error
|
FE OLS
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GMM robust
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Clustered
|
Driscoll-Kraay
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Weighted
|
|
Auto insurance minimum
|
0.096*
|
0.096***
|
0.109***
|
0.108**
|
|
(0.052)
|
(0.026)
|
(0.026)
|
(0.051)
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Compulsory insurance
|
0.01
|
0.01
|
0.019**
|
-0.005
|
|
(0.017)
|
(0.012)
|
(0.008)
|
(0.014)
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No-fault liability
|
0.023*
|
0.023***
|
0.023***
|
0.013
|
|
(0.012)
|
(0.004)
|
(0.006)
|
(0.013)
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|
Primary seatbelt law
|
-0.009*
|
-0.009***
|
-0.005**
|
-0.000001
|
|
(0.005)
|
(0.003)
|
(0.002)
|
(0.003)
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Speed limit
|
0.132
|
0.132**
|
0.179***
|
0.170**
|
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(0.123)
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(0.059)
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(0.047)
|
(0.084)
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Minimum drinking age
|
0.179
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0.179**
|
0.062
|
0.242
|
|
(0.230)
|
(0.088)
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(0.117)
|
(0.331)
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Alcohol consumption
|
0.766***
|
0.766***
|
0.765***
|
0.610***
|
|
(0.093)
|
(0.091)
|
(0.050)
|
(0.109)
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Income per capita
|
0.870***
|
0.870***
|
0.676***
|
0.603***
|
|
(0.169)
|
(0.090)
|
(0.076)
|
(0.101)
|
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Gasoline price
|
0.238
|
0.238
|
0.238
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-0.234
|
|
(0.351)
|
(0.184)
|
(0.181)
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(0.224)
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Population density
|
-0.053
|
-0.053*
|
-0.058*
|
-0.070
|
|
(0.086)
|
(0.027)
|
(0.035)
|
(0.053)
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|
Young population share
|
0.07
|
0.07*
|
0.00737
|
0.139*
|
|
(0.088)
|
(0.036)
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(0.041)
|
(0.078)
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Old population share
|
-0.082
|
-0.082*
|
-0.044
|
-0.177**
|
|
(0.110)
|
(0.043)
|
(0.048)
|
(0.088)
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Crime rate
|
0.0581
|
0.0581
|
0.055**
|
0.007
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(0.044)
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(0.037)
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(0.026)
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(0.036)
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Precipitation
|
-0.085***
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-0.085***
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-0.078***
|
-0.087***
|
|
(0.019)
|
(0.019)
|
(0.018)
|
(0.020)
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Air temperature
|
-0.125
|
-0.125
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-0.258*
|
-0.008
|
|
(0.158)
|
(0.165)
|
(0.151)
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(0.179)
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Lagged dependent variable
|
--
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--
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--
|
0.344***
|
|
(0.051)
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R-squared
|
0.62
|
0.62
|
0.95
|
--
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*** Indicates significance at 1%, ** at 5%, and * at 10%. Dependent variable: traffic fatality rate. The reported coefficients are elasticities computed as d(lny)/d(lnx) at variables’ means (dummies are treated as continuous variables for calculating the means). All models include state and year fixed effects, but their coefficients, along with a constant, are not reported. Due to the lack of consistent annual precipitation and temperature data, Alaska and Hawaii are excluded from the sample, resulting in 48 contiguous states over 25 years or 1,200 observations.
Table 1State auto insurance minimums in 2006 (in thousands of U.S. dollars) DISPLAY Table
Figure 1Traffic fatality rate and real value of auto insurance minimums over time DISPLAY Figure
Figure 2Traffic fatality rates and auto insurance minimums in 48 states (1982-2006) DISPLAY Figure
Figure 3Traffic fatality rates fell less in states that raised auto insurance minimums DISPLAY Figure
Figure 4Traffic fatality rates and auto insurance minimum increases DISPLAY Figure
Table 2Variables and sources DISPLAY Table
Table 3Determinants of traffic fatality rates in 48 states (1982-2006) DISPLAY Table
* We thank Dr. Kevin Shaver and research assistant Josef DiPietrantonio for their invaluable help. We would also like to thank the anonymous referees for useful comments and suggestions.
2 The National Highway Traffic Safety Administration estimates that over 10 million crashes go unreported each year. Insurance Research Council’s Uninsured Motorists 2014 Edition reports that about 13 percent of drivers were uninsured in 2012, with Oklahoma topping the list with 26 percent and Massachusetts at the bottom with 4 percent.
3 Consumer Federation of America claims that most uninsured drivers have low incomes and struggle to afford the high-priced minimum liability coverage now required by all states, except for New Hampshire.
4 Pairwise correlation is 0.99 between per person and per accident medical liability and 0.63 between per person/accident medical and property liability.
5 We adjust the nominal value of insurance minimums for inflation using the GDP deflator.
6 The variables were chosen largely based on the studies by Leigh (  2009), Asch and Levy ( 1990), Nelson, Bolen and Kresnow ( 1998), Derrig, et al. ( 2002), Kahane ( 2000), Glassbrenner ( 2005), Beck et al. ( 2007), Sen ( 2001), Cohen and Einav ( 2003), Cohen and Dehejia ( 2004), Pulito and Davies ( 2009), Friedman, Hedeker and Richter ( 2009), and Yakovlev and Inden ( 2010).
7 A Breusch-Pagan/Cook-Weisburg test indicates the presence of groupwise heteroscedasticity. Arellano-Bond and Wooldridge tests indicate the presence of autocorrelation in the residuals. The Pesaran test detects contemporaneous correlation. The residuals were also tested for non-stationarity using the Pesaran, Shin W-stat, ADF-Fisher Chi-square, and PP-Fisher Chi-square tests, all of which rejected the null hypothesis of non-stationarity.
8 According to the Hadi ( 1992, 1994) outlier test, about 9 percent of our observations could be considered as outliers.
9 It is important to point out that the Arellano-Bond test fails to reject (with p-value of 0.23) the null hypothesis of nonexistent second-order autocorrelation in the error term, a required assumption for GMM models.
10 We use a generalized version of the Durbin-Wu-Hausman (DWH) test of the endogeneity of regressors, implemented as the Hansen/Sargan/C test statistic in the GMM model developed by Baum, Schaffer and Stillman ( 2003).
11 See Viscusi ( 2008) for a review of life valuation methods and findings.
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March, 2018
I/2018
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