The Economics of Traffic Jams

Have you ever had the thought that every additional driver merging in front of you is causing more congestation and trouble for you and everyone else on the road? If you live in California or other high density states, not only is your intuition correct, but it works out in very impressive quantative terms. Consider a new paper on the subject:

"The Accident Externality from Driving," Journal of Political Economy, 2006.

Abstract: We estimate auto accident externalities (more specifically insurance externalities) using panel data on state-average insurance premiums and loss costs. Externalities appear to be substantial in traffic-dense states: in California, for example, we find that the increase in traffic density from a typical additional driver increases total state wide in-surance costs of other drivers by $1,725–$3,239 per year, depending on the model. High–traffic density states have large economically and statistically significant externalities in all specifications we check. In contrast, the accident externality per driver in low-traffic states appears quite small. On balance, accident externalities are so large that a correcting Pigouvian tax could raise $66billion annually in California alone, more than all existing California state taxes during our study period, and over $220 billion per year nationally.