Vehicle Value Externality
Gernot Sieg from the University of Münster and Berthold U. Wigger from the Karlsruhe Institute of Technology (KIT) introduce the vehicle value externality as a previously unacknowledged cost of car traffic. Unlike established externalities such as emissions or congestion, the vehicle value externality arises from the impact of vehicle value on accident damages. By developing a model linking insurance premiums to this externality and applying it to German car traffic data, the annual aggregate cost are estimated at 10 billion euros in 2021. Since this externality has not been internalized by policy makers so far, too expensive cars are bought in Germany and therefore insurance premiums for cars are too high. The article is published in the journal Economics Letters.