Traffic Insurance and Accident Externality Charges

The external costs of road transport have been on the top of the transport policy agenda for almost a decade. While the discussion has been centred around the environmental costs, it emerges that the external accident cost is often the main component. Here the theory of accident externality charges is developed and the price-relevant accident cost for Sweden is estimated. Furthermore, a system to internalise the external cost through an adjustment of the current Swedish insurance system is proposed. It is found that an additional accident externality charge in urban areas is necessary to supplement a reformed traffic insurance. © The London School of Economics and the University of Bath 2001