Motor Vehicle Accident Costs

T 7570.2

October 31, 1994

U.S. Department of Transportation
Federal Highway Administration


Par.

  1. Purpose
  2. Cancellation
  3. Background
  4. Definitions
  5. Recommended Accident Costs
  6. References
  1. PURPOSE. To provide updated information on the most current comprehensive costs of motor vehicle traffic accidents that are appropriate for use

  2. CANCELLATION. Federal Highway Administration (FHWA) Technical Advisory T 7570.1, Motor Vehicle Accident Costs, dated June 30, 1988, is cancelled.

  3. BACKGROUND

    1. Accident costs are used in economic analyses for choosing among alternative improvements to existingroad, street, and highway systems. For example, they can be used to assist in determining which improvements should and should not be implemented when improving older roads, streets, and highways. When used this way, accident costs can influence the identification, assignment of priorities, and selection of additional enhancements. Accident costs are also used to allocate highway safety resources among programs, to evaluate proposed safety regulations and to convince policy makers that safety programs are beneficial.

    2. Estimates of economic costs that result from motor vehicle accidents are routinely published by several public and private organizations. These are often derived from different bases or for different purposes, which often result in significantly different estimates. For example, the National Safety Council (NSC) states that its cost figures may be used by a community or State for measuring the economic loss resulting from past motor vehicle accidents. They should not be used in computing the dollar value of future benefits due to traffic safety measures because they do not include what people are willing to pay for improved safety, i.e., the value of a person's desire to live longer or protect the quality of one's life. The NSC recommends that estimates under the willingness-to-pay concept should be used for benefit-cost analyses wherever feasible. (See paragraph 6a.)

    3. In 1987, Congress directed that research be conducted by the joint National Highway Traffic Safety Administration and the Centers for Disease Control trauma research program to evaluate the impact of injury and associated disability on the United States. In 1989, the report entitled "Cost of Injury in the United States" was published in response to the objectives of that mandate. This report evaluates the magnitude of the impact of injury on individuals, Government programs, and society at large in terms of economic cost and of the effects of injury on people's lives. The report concludes that injury is costly to the nation in productive life years lost, in medical resources, and in pain and suffering of the injured persons, their families, and friends. (See paragraph 6b.)

    4. In 1982, the FHWA embarked on a research contract entitled "Alternative Approaches to Accident Cost Concepts." Its purpose was to establish fatal, injury, and property damage costs for use in highway improvement economic analyses which reflect the amount individualsare willing to pay to reduce the number and severity of accidents. (See paragraph 6c.)

    5. In 1985, the FHWA sponsored additional research, entitled "The Costs of Highway Crashes," to provide a more comprehensive review of accident costs. In 1988, the FHWA published a Technical Advisory giving the preliminary results of that research effort even though the research was not complete. In 1991, the FHWA published a technical summary of the final report of the research effort started in 1985. (See paragraph 6d.) The final report was distributed to field offices and the States on April 13, 1992. The report presents comprehensive costs that people are willing to pay to avoid pain and lost quality of life for use in benefit- cost analyses. Accident costs distinguishing urban and rural areas and most harmful events are also presented in this report. (See paragraph 6e.)

    6. In June 1990, the Office of the Secretary of Transportation (OST), issued a memorandum outlining Departmental guidance on the use of economic values for undertaking regulatory and investment analyses. That guidance contained the following recommendation:

      "For the interim, those agencies that use a dollar value of life in economic analyses should use $1.5 million."

    7. In January 1993, revised Departmental guidance entitled "Treatment of Value of Life and Injuries in Preparing Economic Evaluations" was issued by the OST based on updated research contained in "The Costs of Highway Crashes." A comprehensive value representingwillingness-to-pay for a fatality averted is presented in that guidance. Injury cost guidelines are also given in the Departmental guidance. These costs are shown in paragraph 5.

  4. DEFINITIONS

    1. Measures of Motor Vehicle Accident Cost - three measures of accident costs are commonly used to account for the cost of accidents in different ways:

      • (1) Comprehensive Cost - a method of measuring motor vehicle accident costs that include the effects of injury on people's entire lives. This is the most useful measure of accident cost since it includes all cost components and places a dollar value on each one. Comprehensive life values are estimated by examining risk reduction costs from which the market value of safety is inferred. The 11 components of the comprehensive cost are: property damage, lost earnings, lost household production, medical costs, emergency services, travel delay, vocational rehabilitation, workplace costs, administrative, legal, and pain and lost quality of life.

      • (2) Years Lost Plus Direct Cost - includes the same cost components as the comprehensive cost category; however, it replaces lost earnings, lost household production, and pain and lost quality of life with a non-monetary measure: lost years. Those costs in this category which are given a monetary value are known as direct costs. Direct costs are property damage, medical costs, emergency services, travel delay, vocational rehabilitation, workplace costs, and administrative and legal costs.

      • (3) Human Capital Cost - includes all comprehensive cost components except pain and lost quality of life.

    2. Willingness-to-Pay Cost - refers to the costs people are willing to pay for safety improvements to avert a fatality or injury. Willingness-to-pay cost is another name for comprehensive cost; however, the term is a misnomer. A review of the economics literature reveals that these cost estimates are drawn from safety markets showing how much people actually pay to reduce safety risks, not necessarily what they are willing to pay.

    3. Discount Rate - used to compute the present value of future monetary costs of injury. Empirical evidence suggests that expected future benefits are not valued by society as highly as immediate benefits. A discount rate is therefore applied to measure the percent per year the future valuation decreases. Dollar benefit values should be assigned to lives saved and injuries prevented, and these costs should then be discounted to present worth values using the appropriate discount rate. The Office of Management and Budget specifies a discount rate of 7 percent to be used for benefit-cost analyses of Federal programs and regulation impact analyses.

  5. RECOMMENDED ACCIDENT COSTS

    1. The motor vehicle accident cost figures shown in Table 1 and Table 2 are comprehensive costs (in 1994 dollars) recommended for use by State and local highway and safety agencies. Table 1 shows costs by Abbreviated Injury Scale (AIS) while Table 2 shows costs by K-A-B-C Scale. The basis for these costs is information contained in the research report "The Costs of Highway Crashes." (See paragraph 6e.) This study presents a figure of $2.2 million (in 1988 dollars) as the recommended value to use in benefit-cost analyses as the willingness-to-pay to avert a fatality.

    2. That value has been updated to 1994 dollars using the Gross Domestic Product (GDP) implicit price deflator as recommended in the January 1993 Departmental guidance. The GDP implicit price deflator increased about 18 percent from its average value in 1988 through 1993. Therefore, the 1988 figure of $2.2 million dollars wasincreased 18 percent to yield a 1994 figure of $2.6 million dollars.

    3. The willingness-to-pay to avoid injury are also presented in the January 1993 Departmental guidance. Injury costs are derived from Miller, Brinkman, and Luchter, "Crash Costs and Safety Investment." (See paragraph 6f.) The relationship between cost per injury and injury severity (in 1994 dollars) are shown in Table 1 and Table 2.

      TABLE 1
      COMPREHENSIVE COSTS IN POLICE-REPORTED CRASHES
      BY ABBREVIATED INJUR SCALE (AIS) SEVERITY
      (1994 Dollars)

      SEVERITY DESCRIPTOR COST PER INJURY
      (DOLLARS)
      AIS 1 Minor 5,000
      AIS 2 Moderate 40,000
      AIS 3 Serious 150,000
      AIS 4 Severe 490,000
      AIS 5 Critical 1,980,000
      AIS 6 Fatal 2,600,000

      TABLE 2
      COMPREHENSIVE COSTS IN POLICE-REPORTED CRASHES
      BY K-B-B-C SCALE SEVERITY
      (1994 Dollars)

      SEVERITY DESCRIPTOR COST PER INJURY
      (DOLLARS)
      K Fatal 2,600,000
      A Incapacitating 180,000
      B Evident 36,000
      C Possible 19,000
      PDO Property Damage Only 2,000
    4. These costs should be updated annually using the GDP implicit price deflator. The OST will issue a memorandum each year advising of the current GDP value to be used. The FHWA will inform the field offices of the latest GDP value to be applied to the existing figures.

  6. REFERENCES

    1. National Safety Council. "Accident Facts," 1990 Edition, page 73, Chicago, IL, 1990.

    2. University of California, San Francisco and the Johns Hopkins University; Dorothy Rice, Ellen MacKenzie, and Associates; "Cost of Injury in the United States: A Report to Congress," 1989.

    3. Federal Highway Administration (FHWA). "Alternative Approaches to Accident Cost Concepts," Report No. FHWA RD-83-079, Federal Highway Administration, Washington,D.C., January 1984 (PB No. 84 196658).

    4. FHWA. "Summary, The Costs of Highway Crashes, Publication No. FHWA-RD-91-055," McLean, VA, October 1991.

    5. The Urban Institute. "The Costs of Highway Crashes," Federal Highway Administration Research Report Number FHWA-RD-91-055, Washington, D.C., October 1991.

    6. Miller, Ted R., C. Philip Brinkman, and Stephen Luchter; "Crash Costs and Safety Investment;" Proceedings of the 32nd Annual Conference, Association for the Advancement of Automotive Medicine, Des Plaines, IL, 1988.

Dennis C. Judycki
Associate Administrator
for Safety and
System Applications

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