Driving slowly to economic death

Once again the country seems to be goingthrough a period characterised by a high number of road accident deaths.   Andas 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.   Foranyone going over the speed limit an accident is surely imminent.

Lowering speed limits is virtuallyguaranteed 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 killsomeone.   How about 50km/hr?   Deaths would still occur.   About 5km/hr should makeeven pedestrians safe.   The problem is of course that this type of logic looksat only one side of the benefit-cost equation.   Savings in life and injury fromslower travel is not costless.   The cost takes the form of greater travel timeand 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 is900 million hours per year.   The value of people’s time depends on whethertheir travel is for work or leisure, but even at a low average $10/hr theimplied value of travel time is $9 billion per annum, and that’s counting onlythe driver.  

If the average travel speed was reduced to45 km/hr, the annual increase in the cost of travel would be one billiondollars.   Given that city speed limits are less likely to be lowered, areduction 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 correspondsto about $230/person.   This cost manifests itself in subtle ways such as higherprices for goods at the supermarket because it takes longer to transport themaround the country, more trucks on the road as fewer deliveries would bepossible in a working day, and generally more of the nation’s resources usedfor transport services instead of being available to produce other goods andservices. Perhaps the most obvious manifestation of the cost would be in longertravel times to and from work, implying less time to spend with family and friendsor, if it means less time at work, a lower level of economic output.   Thus wewould all feel the cost in some form, be it a lower economic standard of livingor less time with family and friends.

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

Governments get involved in road use because without rulesand regulations there would be chaos (but this does not mean that more ruleswill always lead to better outcomes).   In economic terms road accidents can beconsidered to be negative externality of road use, in which case there is anargument for government intervention.   However, the argument is not thatsolid.   Arguably most road users are aware that each time they venture onto theroad 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-payerfunded public hospital care and so on.   For most of these losses the marginalprice signal is therefore muted and so some degree of externality arises, butfor 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 speedlimits.  

Furthermore, many accidents are not caused simplybecause someone is driving over the speed limit.   They are caused by drivingthat is too fast for the conditions – the traffic, the vehicle, the road, theweather and the judgement of the driver.   Lower speed limits will not stopstatistically random acts such as people driving into lamp posts, overtaking onblind corners and racing one another using both sides of the road.   Againbetter driver education, especially education about risk, how to reduce it and theconsequences of not reducing it, would help.  

Let’s look too at tighter controls on vehicleroad-worthiness and more separation of lanes of opposing traffic which has beenshown internationally to have a significant effect on the number of fatalcrashes.   Lowering speed limits is a costly way to reduce the number of roadaccidents.

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