The valuation of road safety for public decision making : with application to Australia

This study investigates the proper valuation of the social and economic consequences of road accidents in guiding public decision-making and policy on accident research and road safety. The work is in three stages: (i) a review and assessment of road accident cost studies; (ii) the estimation, presentation and appraisal of comprehensive social costs of road accidents for Australia in a recent year; and (iii) a critique of the theoretical and empirical economic literature on the 'value of life', and its implications for the valuation of road safety. The theme of the study is the conflict between the two approaches to the valuation of safety: the practice of treating road accidents as social costs and the alternative concept of direct economic valuation of life and the avoidance of risk. Neither approach has yet produced definitive empirical results and there remain unresolved valuation problems affecting public sector assessments of safety. 1978 Australian accident costs are estimated in a modified 'societal' cost framework which is proposed as a compromise between the two valuation approaches. The composition of this framework Is examined, especially the valuation of fatalities in terms of foregone income. Problems identified include the income concept chosen, the treatment of those not earning, the effects of the age distribution of the accident sample, and the role of the discount rate. The study gives particular attention to the skewed distributions of average accident costs which renders them misleading in use. A method is proposed to simulate accident cost distributions according to injury severity by fitting probability distributions. Finally a critique of the extensive recent literature on the economics of the value of life and safety is undertaken to assess the relevance of this approach to public sector decision making, and its relationship to accident cost studies. This approach, proposes willingness to pay for reduction in risk of death as the correct safety valuation concept, with suggested application in road safety, public health, and environmental pollution policy. Recent empirical studies using this valuation concept are examined, and appear to produce plausible results. A useful but controversial suggested elasticity relationship between willingness-to-pay valuation of life and the foregone income method is also discussed. Some preliminary conclusions are presented about the conceptual and empirical feasibility of valuing road safety, and about the limitations of the 1978 Australian estimates as parameters to guide public policy on road safety