Driving slowly to economic death
Fri 24 Apr 2009 by Infometrics Ltd.

Once again the country seems to be going through a period characterised by a high number of road accident deaths.   And as usual we hear the same sorts of calls for action – lower speed limits, higher fines and demerit points, more police officers on the road and so on.   For anyone going over the speed limit an accident is surely imminent.

Lowering speed limits is virtually guaranteed to lower the number of serious crashes and deaths on the road.   Atop speed of 80km/hr would go a long away, but that’s still fast enough to kill someone.   How about 50km/hr?   Deaths would still occur.   About 5km/hr should make even pedestrians safe.   The problem is of course that this type of logic looks at only one side of the benefit-cost equation.   Savings in life and injury from slower travel is not costless.   The cost takes the form of greater travel time and the numbers are huge.   The annual number of vehicle kilometres in New Zealand is about 45 billion.     If the average speed across all travel is say 50km/hr (which is probably an overestimate) the amount of time spent on road travel is 900 million hours per year.   The value of people’s time depends on whether their travel is for work or leisure, but even at a low average $10/hr the implied value of travel time is $9 billion per annum, and that’s counting only the driver.

If the average travel speed was reduced to 45 km/hr, the annual increase in the cost of travel would be one billion dollars.   Given that city speed limits are less likely to be lowered, a reduction in the average speed of 5km/hr probable entails a reduction of 10-20km/hr on highways and country roads.

An annual cost of one billion dollars corresponds to about $230/person.   This cost manifests itself in subtle ways such as higher prices for goods at the supermarket because it takes longer to transport them around the country, more trucks on the road as fewer deliveries would be possible in a working day, and generally more of the nation’s resources used for transport services instead of being available to produce other goods and services. Perhaps the most obvious manifestation of the cost would be in longer travel times to and from work, implying less time to spend with family and friends or, if it means less time at work, a lower level of economic output.   Thus we would all feel the cost in some form, be it a lower economic standard of living or less time with family and friends.

Against these losses we should of course offset the reduction in fatalities and injuries.   The SurfaceTransport Costs and Charges study in 2005 estimated the economic cost of road accidents at around $3 billion per annum.   It is implausible that the above reduction in average travel speeds would cut this total by a third.     And this doesn’t even begin to consider the cost of enforcement – not so much the direct cost of police time and equipment, but the opportunity cost of diverting police resources away from dealing with real crime.

Governments get involved in road use because without rules and regulations there would be chaos (but this does not mean that more rules will always lead to better outcomes).   In economic terms road accidents can be considered to be negative externality of road use, in which case there is an argument for government intervention.   However, the argument is not that solid.   Arguably most road users are aware that each time they venture onto the road there is some chance that they will be involved in an accident.  Associated with this is an expected welfare loss in the form of lost earnings, medical expenses and especially; pain and suffering.   Some of these losses maybe partially offset through vehicle insurance, disability insurance, tax-payer funded public hospital care and so on.   For most of these losses the marginal price signal is therefore muted and so some degree of externality arises, but for pain and suffering the marginal price signal is likely to be quite strong.  For this type of loss, do road users systematically underestimate the risks?    If so, this situation could be ameliorated by better education, not lower speed limits.

Furthermore, many accidents are not caused simply because someone is driving over the speed limit.   They are caused by driving that is too fast for the conditions – the traffic, the vehicle, the road, the weather and the judgement of the driver.   Lower speed limits will not stop statistically random acts such as people driving into lamp posts, overtaking on blind corners and racing one another using both sides of the road.   Again better driver education, especially education about risk, how to reduce it and the consequences of not reducing it, would help.

Let’s look too at tighter controls on vehicle road-worthiness and more separation of lanes of opposing traffic which has been shown internationally to have a significant effect on the number of fatal crashes.   Lowering speed limits is a costly way to reduce the number of road accidents.

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