--- category: literaturenote citekey: elvikstrengtheningincentivesefficientroad2010 title: "Strengthening incentives for efficient road safety policy priorities: The roles of cost–benefit analysis and road pricing" authors: "Elvik, Rune" year: 2010 date: 2010-00-00 2010 doi: 10.1016/j.ssci.2010.01.005 publication: Safety Science url: "https://doi.org/10.1016/j.ssci.2010.01.005" zotero_key: PQ258R6J zotero_storage: 7GTAAZ86 collections: transpordi_planeerimine folder: 001_artiklid/Road Safety Indicators firstAuthor: "Elvik, Rune" status: converted --- ![](_page_0_Picture_1.jpeg) ## Contents lists available at [ScienceDirect](http://www.sciencedirect.com/science/journal/09257535) # Safety Science ![](_page_0_Picture_4.jpeg) ![](_page_0_Picture_5.jpeg) # Strengthening incentives for efficient road safety policy priorities: The roles of cost–benefit analysis and road pricing Rune Elvik \* Institute of Transport Economics, Gaustadalléen 21, NO-0349 Oslo, Norway #### article info Article history: Received 13 May 2009 Received in revised form 2 January 2010 Accepted 7 January 2010 Keywords: Cost-benefit analysis Power Welfare Incentives Road safety policy Social dilemmas #### abstract This paper discusses how incentives for setting efficient priorities in road safety policy can be strengthened. Efficient priorities are characterised by the use of cost-effective road safety measures. Cost-effective road safety measures can be identified by means of cost-benefit analyses. Studies of the actual priorities in road safety policy, in particular in the Scandinavian countries, suggest that these priorities are inefficient, i.e. characterised by the non-use or sub-optimal use of cost-effective road safety measures as well as an extensive use of ineffective road safety measures. This occurs despite the fact that road safety policy analyses have included extensive cost-benefit analyses of road safety measures. It would thus appear that cost-benefit analyses do not necessarily generate a sufficient incentive to implement cost-effective road safety measures. Possible reasons for this are discussed in the paper. It is argued that a large part of the monetary benefits of road safety measures, as estimated in cost-benefit analyses, are not subject to market transactions, and do therefore not manifest themselves in the form of increased income or higher profits. While cost-benefit analyses are indispensable as a means of identifying cost-effective road safety measures, their influence on actual road safety policy needs to be strengthened by providing additional incentives for the use of cost-effective road safety measures. It is suggested that a system of road pricing could generate such incentives. A brief sketch of a hypothetical system of road pricing is given and some problems associated with the implementation of this system are discussed. > -2010 Elsevier Ltd. All rights reserved. ## 1. Introduction In order to maintain progress in improving road safety, it is important to use cost-effective road safety measures. In this paper, the term cost-effective will be used to denote measures whose benefits (in monetary terms) are greater than their costs (in monetary terms). To identify cost-effective road safety measures, cost– benefit analysis is an indispensable tool [\(OECD, 2008\)](#page-7-0). Road safety policy analyses relying on cost-benefit analyses have been reported in several countries [\(Elvik, 1997, 2001, 2003, 2007; Elvik et al.,](#page-6-0) [1984; Elvik and Amundsen, 2000; OECD, 2008\)](#page-6-0). These analyses show that major improvements in road safety can be accomplished by implementing cost-effective road safety measures. The most recent analysis for Norway [\(Elvik, 2008a\)](#page-6-0) suggested that the number of road accident fatalities can be reduced by about 50% if all currently known cost-effective road safety measures are implemented by the year 2020. However, other studies [\(Elvik, 1993, 1995a, 2009a; Fridstrøm](#page-6-0) [and Elvik, 1997; Odeck, 1991, 1996; Jansson and Nilsson, 1989;](#page-6-0) [Nilsson, 1991; Nyborg, 1998; Elvik and Veisten, 2005; Helland](#page-6-0) [and Sørensen, 2009\)](#page-6-0) show that actual road safety policy, at least in Norway, is characterised by inefficient priorities. This means that policy involves both the use of measures that are not costeffective (i.e. benefits are smaller than costs) and the non-use or sub-optimal use of measures that are cost-effective. The existence of inefficient policies can be ascertained by examining the main findings of successive road safety policy analyses for Norway [\(Elvik](#page-6-0) [et al., 1984; Elvik, 1999, 2007\)](#page-6-0). In all these analyses, several main policy options were developed. Two of these options were to continue present policy or to base policy strictly on cost-benefit analysis. In the most recent of these analyses ([Elvik, 2007\)](#page-6-0), it was found that continuing present policy may reduce the number of road accident fatalities from 250 (mean 2003–2006) to 190 in 2020. Cost-effective use of road safety measures, based strictly on the results of cost-benefit analyses, may reduce the number of fatalities to 138 in 2020. In other words, current road safety policy in Norway does not make use of all opportunities for cost-effective road safety improvements. It should be added that this finding may not apply to all countries. A study in Great Britain [\(Nellthorp and Mac](#page-6-0)[kie, 2000](#page-6-0)) found that priorities between major road projects were to a large extent, although not slavishly, based on cost-benefit analysis. A recent Norwegian study [\(Odeck, 2009\)](#page-7-0) also indicated \* Tel.: +47 22 57 38 10; fax: +47 22 60 92 00. E-mail address: [re@toi.no](mailto:kre@toi.nore@toi.no) that policy makers base their priorities on the factors that are included in cost-benefit analyses (travel time, safety, environmental amenities), but take account of these factors in non-monetary terms (impact assessments in Norway are required to state impacts both in natural units and in monetary terms). It is nevertheless relevant to ask the following questions: - 1. Why are the actual priorities in road safety policy inefficient? Does cost–benefit analysis generate sufficient incentives to implement cost-effective road safety measures? - 2. If cost–benefit analysis does not generate sufficient incentives for efficient policy priorities, how can stronger incentives for making policy conform more closely to the results of cost-benefit analyses be created? It should be noted that there are, in theory, very many reasons why actual road safety policy may not be based strictly on the results of cost–benefit analysis ([Elvik and Veisten, 2005\)](#page-6-0). It could, for example, be the case that implementing all cost-effective road safety measures would require substantially larger expenditures than current budgets allow for. However, road safety policy analyses in Norway [\(Elvik, 1999, 2007\)](#page-6-0) found that this was not the case. Current policy priorities in Norway are so inefficient that all costeffective road safety measures could be funded by reducing expenditures on ineffective measures and increasing expenditures on cost-effective measures, without having to increase total expenditures. This may of course be different in other countries. This paper will focus on two possible reasons why cost-benefit analyses may not create sufficient incentives to implement cost-effective road safety measures. The first of these concerns the nature of the monetary benefits of improved road safety and the possibilities of converting these benefits to increased income or larger profits. The second concerns the strength of the interests various stakeholders who may influence road safety have in improving road safety. ## 2. Components of the monetary valuation of road safety and the nature of road safety benefits While different countries estimate the costs of road accidents in different ways, there is near unanimity among economists about how to estimate these costs for use in cost-benefit analysis. Guidelines for estimating road accident costs are given in a number of publications, including a report from the COST-programme [\(Alfaro](#page-6-0) [et al., 1994\)](#page-6-0) and reports from the ECMT and OECD [\(ECMT, 2001;](#page-6-0) [Pearce et al., 2006](#page-6-0)). These guidelines recommend using a combination of three approaches in order to cover all cost elements: - 1. The resource cost method, also referred to as the costs of restitution, is applied to estimate the direct monetary outlays associated with resources used as a result of accidents. - 2. The human capital method, which is applied to estimate the value of productive capacity lost as a results of accidents. Lost productive capacity is sometimes referred to as indirect costs of accidents. - 3. The willingness-to-pay method, which is used to estimate the ex ante demand for improving road safety, i.e. the gain in welfare (consumer surplus) that can be attained by reducing the number of accidents. [Fig. 1](#page-2-0) lists these components of the monetary valuation of road safety. The various components of valuation differ in terms of how they are manifested in economic transactions. The direct costs are real expenditures. In principle, these costs can be retrieved or at least roughly identified in the accounts of hospitals, insurance companies, the police, the courts, car repair shops and households. Estimates of lost productive capacity partly reflect monetary transactions; partly these costs are of a more abstract nature. In particular, lost productive capacity attributable to a fatality is usually estimated as the present value of future earnings. This represents the value of what the individual could have produced if alive; this can never be known with certainty and is therefore most appropriately interpreted as a loss of productive potential or capacity, not an actual loss of production. The actual loss of production resulting from accidents can be estimated by applying the friction cost method developed by Koopmanschap et al. ([Koopmanschap and Ineveld, 1992; Koopmanschap](#page-6-0) [et al., 1995](#page-6-0)). This method estimates the loss of production during the period it takes to hire new staff to replace an individual who leaves the labour force as a result of an accident. The estimates developed by Koopmanschap et al. indicate that the actual losses of production are only about 10% of the present value of the loss of productive capacity or potential. This does not mean that the loss of productive potential is not real; it simply means that this loss does not materialise as a decline in production. Willingness-to-pay for a reduced number of road accidents reflects the hypothetical demand for improved safety. It does not reflect any actual monetary transactions. This fact was clearly understood by the pioneers introducing the willingness-to-pay approach to the valuation of road safety. Thus, [Schelling \(1968\),](#page-7-0) page 143 wrote: ''Unexpected death has a hypothetical quality whether it is merely being talked about or money is being spent to prevent it." The willingness-to-pay for reducing statistical risks by an amount that corresponds to the prevention of one death has nothing to do with the ex post costs generated by the death of a known individual. The latter costs are at least two orders of magnitude smaller than the valuation of preventing a death. Thus, in countries that apply the willingness-to-pay approach for valuing road safety, this component normally represents more than half, in some cases nearly the whole, monetary value assigned to improving road safety [\(Elvik, 1995B\)](#page-6-0). The valuation of improved road safety in terms of willingness-to-pay is not subject to market transactions. This means that, although representing real benefits of improving road safety, it will not be realised in terms of added income or profits. ## 3. Incentives and stakeholders in road safety policy #### 3.1. The concept of incentives Given the fact that a large part of the monetary benefits of improved road safety, as estimated in cost-benefit analyses, will not manifest itself as a monetary gain, it is necessary to ask whether various actors who can influence road safety have sufficiently strong incentives to do so, even if actual the monetary benefits obtained will be considerably smaller than the societal benefits as reflected in the valuation of improved safety. An incentive can be defined as any prospective benefit or reward favouring the choice of an option. Thus defined, an incentive can only motivate for action if it makes a noticeable difference in utility and if the actor is able to bring about the desired outcome of an action. The relevant questions therefore are: - 1. To what extent can various actors (households, businesses, health care providers, car manufacturers, government) influence road safety by means of actions under their control? - 2. How much would these actions influence the utility of these actors? The term ''utility" is applied in a very broad sense here: It refers to the level of satisfaction or welfare, including the level of support ![](_page_2_Figure_2.jpeg) Fig. 1. Components of the monetary valuation of improved road safety. given to actions taken by politicians. The following sections will briefly discuss the incentives of some actors to influence road safety. ## 3.2. Household incentives to improve road safety Do households face strong incentives for improving road safety? According to the latest survey of household consumption expenditures in Norway [\(Statistics Norway, 2009\)](#page-7-0), only about 2.3% of expenditures can reasonably be interpreted as being attributable to road accidents. In other words, if road accidents were eliminated, an average Norwegian household would save about 2% on their household budget. No household can exercise 100% control of the risk it faces on the road. A more plausible estimate is that individual behaviour, with respect to, for example, speed [\(Elvik,](#page-6-0) [2008b](#page-6-0)), route choice or seat belt wearing can influence the risk of injury by, say, about 30%. Hence, by consistently adopting safe behaviour, a household might be able to save 30% of its accident costs, amounting to about 0.7% of the total household budget. This incentive must be regarded as quite weak. An additional problem is that some promising road safety measures that are cost-effective from a societal perspective are not cost-effective from a road user perspective. ISA (intelligent speed adaptation; technology making speeding impossible or at least unpleasant) is a case in point. The assessment of costs and benefits of ISA on new cars from a societal perspective and from a road user perspective are compared in [Table 1](#page-3-0). According to the societal perspective, the benefits consist of all savings in accident costs, from which the costs of additional travel time below the speed limit are subtracted. It was assumed that not all ISA-systems are perfect; hence, the mean speed of travel in a traffic stream in which all vehicles have ISA will be a little below the speed limit. This additional travel time has been included. According to a road user perspective, the analysis is quite different. Only 60% of accident savings are included, as the rest of accidents are external from the road user's point of view ([Elvik, 1994\)](#page-6-0). The full costs of reducing speed, including those attributable to the lowering of illegal speeds, have been included. While treating time saved by speeding (i.e. violating the speed limit) as a benefit is not appropriate in a cost–benefit analysis adopting a societal perspective ([Elvik, 2006\)](#page-6-0), it is clearly a benefit from a road user perspective; why else would drivers be speeding? The two perspectives give dramatically different results. From the societal perspective, benefits exceed costs by a wide margin. From a road user perspective, benefits are negative. Hence, unless a cost–benefit analysis somehow succeeded in persuading households to adopt a societal perspective, it is unlikely that it would make households buy ISA. #### 3.3. Business incentives to improve road safety Just as the average costs of road accidents represent a small share of an average household budget, the mean cost of an accident normally represents a very small share of the costs of a business firm. Thus, in a study of the costs of occupational accidents in the furniture industry, [Rundmo and Söderqvist \(1994\)](#page-7-0) found that the financial losses resulting from accidents amounted to 0.3% of the total payroll. Businesses themselves paid only about 20% of this; the rest was covered by the public sector. The purely financial incentive to prevent accidents was therefore almost non-existent; on the average a saving of 0.05% of the wage budget would be attained if accidents were eliminated. In short, businesses – at least in the furniture industry – hardly have noticeable costs as a result of accidents. According to [Rundmo](#page-7-0) [and Söderqvist \(1994\)](#page-7-0) firms kept a larger staff than they strictly speaking needed. They did so in order to keep production running smoothly in cases of illness. The normal rate of absence from work in many industries is between 5% and 10%; thus to keep activities progressing normally, surplus staff of at least this magnitude is needed. Keeping this staff of course costs a lot. But this cost has already been internalised by businesses; injuries that result from accidents have, in a sense, been paid for in advance and hardly generate any new cost. Since most of the cost of keeping surplus staff is attributable to illness not caused by accidents, the monetary incentive to improve safety is weak. [Osmundsen et al. \(2008\)](#page-7-0) discuss in general terms problems associated with implementing safety incentives in industry. They point out several difficulties that are likely to reduce the efficiency of incentives intended to promote safety, using Norwegian oil industry as a case. Table 1 Costs and benefits of intelligent speed adaptation (ISA) as viewed from a societal and driver perspective. | Item of benefits or costs | Amounts in million NOK (1 NOK = 0.12 Euro in May 2009) if all cars have intelligent speed adaptation. Negative amounts are added costs | | | | | |---------------------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|--|--| | | Societal perspective
Driver perspective
Comments | | | | | | Accident savings | 28.997 | 17.398 | About 40% of accident costs are external and not counted as a benefit by drivers | | | | Extra travel time |
6402 |
38.410 | Only reduction in legal speeds included according to societal perspective | | | | Vehicle operating costs | 720 | 720 | Car drivers will include all savings in vehicle operating costs | | | | Environmental benefits | 2350 | 0 | Environmental benefits are external from drivers' point of view | | | | Total benefits | 25.665 |
20.292 | | | | | Installation costs | 9181 | 9181 | Costs are paid in full by drivers | | | | Annual running costs | 2333 | 2333 | Costs are paid in full by drivers | | | | Total costs | 11.514 | 11.514 | | | | | Benefit cost ratio | 2.23 |
1.76 | Dramatic difference in results depending in perspective adopted | | | #### 3.4. Health care sector incentives to promote road safety Does the health sector have a strong incentive to improve road safety? A recent cost estimate for Norway ([Elvik, 2009B](#page-6-0)) indicates that the costs of treating traffic injury victims represent only about 1.5% of the total operating cost for hospitals in Norway. Thus, by eliminating road accidents, <2% of the total hospital budget could be saved. In practice, however, it is not very likely that hospital budgets would be cut by this amount if road accidents were eliminated. It is more likely that the resources now spent on treating traffic injury victims would be transferred to other types of medical treatment. There are waiting lists for many types of treatment; in principle these could be shortened if there were no road accidents. This is obviously a societal gain. But the gain would not materialise in the form of reduced spending on health care. Moreover, the health sector does not control any road safety measures and is therefore not in a position to reduce the costs by means of its own policies. ## 3.5. Car manufacturer incentives to improve road safety Car manufacturers are today facing an incentive to improve road safety that is considerably stronger than it was only 15 years ago. One of the factors contributing to this is the remarkable success of the European New Car Assessment Programme (EuroNCAP) ([ETSC, 2009](#page-6-0)). EuroNCAP is an extensive programme for testing and rating the safety performance of new cars. The programme has become widely known among car owners, thanks in part to the support and publicity given to the programme by motoring organisations. EuroNCAP has attained high credibility because it is an independent programme providing objective assessments; it does not cater to the commercial interests of any particular car manufacturer. This gives the programme a vastly more authoritative status than any advertisement produced by a car manufacturer. EuroNCAP score has become a key element in the competition for car purchasers. Studies [\(Andersson, 2005\)](#page-6-0) show that consumers value car safety and are willing to pay for it. [Andersson \(2005\)](#page-6-0) estimated the implicit value of preventing a fatality to SEK 12 million (1 SEK = 0.10 Euro in December 2009). Car safety has improved greatly in recent years; occupants of new cars are far less likely to be killed or seriously injured in an accident of a given severity than occupants of older cars [\(Broughton, 2008; Martin and Len](#page-6-0)[guerrand, 2008](#page-6-0)). In principle, therefore, safety can be developed into a major competitive force in the marketplace, thus giving car manufacturers incentives to develop safer cars. Car manufacturers will, however, only offer safety technology they think will sell. ISAsystems, for example, are not offered by car manufacturers today. #### 3.6. Road authority incentives to promote road safety In all highly motorised countries, the road system has been greatly improved during the past 50 years or so. Many of these improvements are likely to have contributed to improving road safety. Do road authorities face strong incentives to improve road safety? Road authorities do face incentives, but these are partly of a different nature from those facing other stakeholders. In the first place, road authorities can be instructed by politicians to implement road safety measures. In the second place, the recent development of road assessment programmes, like EuroRAP, has made information more easily available to motorists about the safety of roads, thus putting pressure on road authorities to improve roads with a bad safety record. In the third place, it is not unreasonable to think that many traffic engineers take professional pride in designing safer roads and improving the safety of existing roads. Neither of these incentives is, however, derived from cost-benefit analysis. Although facing incentives to improve road safety, road authorities do not necessarily face a strong incentive to use their budgets as efficiently as possible. For Norway, there is evidence ([Nyborg, 1998](#page-6-0)) that road budgets are ample and clearly large enough to fund all cost-effective measures as well as quite a few measures that are not cost-effective. This may of course be different in other countries. Other studies ([Elvik, 1995a, 2009a](#page-6-0)) indicate that road authorities in Norway regard politicians as their principals and try to develop politically feasible investment programmes that will be widely supported by politicians. To a certain extent, policies designed to be widely supported will embody priorities not based strictly on efficiency. #### 3.7. Preliminary conclusions Based on the discussion above, it seems clear that cost-benefit analyses will not always create sufficient incentives for implementing cost-effective road safety measures. In the first place, the actual monetary gains resulting from road safety measures will be considerably smaller than the full societal benefits of such measures as estimated according to the willingness-to-pay for improving road safety. This does not mean that the benefits are not real, simply that they are not converted to a stream of cash by means of market transactions. In the second place, some of those who have a stake in road safety have such a small stake in it that they face weak incentives to act. Car manufacturers and road authorities face stronger incentives, and these incentives have probably become stronger in recent decades than they used to be. The incentives facing car manufacturers and road authorities are, however, of a general nature and do not ensure that these stakeholders will always promote the most efficient measures for improving road safety. It is reasonable to say that both car manufacturers and road authorities can be expected to continue their efforts to improve road safety, but not necessarily in the most cost-effective manner. Cost-benefit analyses therefore needs to be supported by stronger instruments of power in order to ensure that the priorities for improving road safety are as efficient as they can be. Can such instruments of power be imagined? Can a way be found to convert the hypothetical demand for road safety, as expressed in the willingness-to-pay for it, into an actual demand and thus generate stronger incentives for improving road safety? ## 4. The prospects of a near perfect road pricing to generate demand for road safety ## 4.1. Technology for road pricing Technological progress is rapidly making it possible to introduce a near perfect system of road pricing. In such a system, every road user would pay the marginal societal costs of road use per kilometre of travel. These costs would include: - 1. The cost of providing a certain road capacity. - 2. Road maintenance costs. - 3. Costs of specific road safety measures. - 4. Accident costs. - 5. Environmental costs. For each of these items a basic cost rate per kilometre of travel would be determined for each road. Each motor vehicle could then be fitted with a driving computer and a geographical positioning system that could record information regarding, for example: - 1. Route choice. - 2. Speed. - 3. Use of daytime running lights. - 4. Following distance. - 5. Use of indicators. - 6. Impact speed in case of an accident. The cost of the equipment needed to record these data is rapidly going down. The advantages of recording the data would be huge. One could, for example, in principle eliminate the problem of incomplete accident reporting and inaccurate information regarding where accidents take place. Enormous amounts of data would be produced by driving computers. A solution must be found to the problem of how to collect and process these data. There are many possibilities. One possibility would be to connect the fuel system electronically to the driving computer. The computer would write the data to a memory stick that would need to be removed from the car every time it needed to be refuelled. It would not be possible to open the lid to the fuel tank without removing the memory stick. To pay for the fuel, the memory stick would have to be inserted into a computer at each fuel station – the driver would then get a bill including both the fuel and the payment for using the road. A new memory stick would be handed to the driver as a receipt for the payment; this would then have to be inserted into the driving computer in order to be able to start the car. As outlined above, the driving computer would be an instrument for data collection only. It would not interfere with driver behaviour. Drivers would therefore still have the option of speeding; however, every instance of speeding would be detected and the driver would be charged a fee proportional to the risk involved in speeding plus a penalty intended as a deterrent. As far as pedestrians and cyclists are concerned, [Jansson \(1994\),](#page-6-0) in an analysis of the external cost of accidents, argues that these road users should not pay for using the roads, since motor vehicles are the main source of the risk they are facing. It will therefore be assumed that motorists will pay the costs of facilities intended for use by pedestrians or cyclists. This would be in their interest, as separate facilities for pedestrians and cyclists make it less likely that motorists will cause injuries to these road users. ## 4.2. A simple illustration To illustrate how a system of road pricing might be operating, consider the estimates of the societal costs of travel given in [Table](#page-5-0) [2](#page-5-0). The table is based on [Erke and Elvik \(2006\)](#page-6-0) and on [Samstad et al.](#page-7-0) [\(2005\)](#page-7-0). The estimates in [Table 2](#page-5-0) include only the external effects of motorised travel by road, not the costs of road investments and maintenance. Consider, as an illustration a driver who is driving 1 km on a rural two lane road with a speed limit of 80 km/h. The basic charge for this driver would be NOK 0.973 km-1 (1 NOK = 0.12 Euro as of December 2009). If the driver was speeding by 10%, i.e. going at a speed of 88 km/h, a surcharge would be added to reflect the cost of speeding. This cost would include an increase in accident risk, increased contribution to global warming and an increase of air pollution. Applying the Power Model ([Elvik, 2004, 2005\)](#page-6-0), the surcharge can be estimated to about 0.30 NOK for accidents and in total about 0.02 NOK for global warming and air pollution. The total charge per kilometre would then be about NOK 1.30 km-To this should be added a surcharge for road maintenance, as road wear increases as a function if speed. Faced by prices per kilometre of driving that vary depending on the baseline level of accident risk and depending on individual behaviour, drivers would soon discover that safe behaviour brings monetary rewards in the form of lower charges per kilometre. As part of such a system, road authorities could offer specific services to road users every year on every road. These services might, depending on the status of the road, include: resurfacing, renewing traffic signs, installing road lighting, changing the speed limit, or any other measure. At the beginning of each year, road authorities would contact all car owners who used the road at least once the past year and offer them a package of services and an estimate of the cost of these services. Payment for major investments would take the form of down-payments during a number of years, to avoid suddenly increasing road user charges drastically to fund a major project. Road users would indicate their willingness-to-pay for the services offered by purchasing memory sticks that contain different combinations of the measures. To prevent strategic behaviour in the form of free riding, services should be priced so that they could only be offered if everybody paid for them. The amount paid would depend on the frequency of use of the road. In case of insufficient demand, the services would not be performed. To stimulate demand, road users should be offered rebates once the measures offered had been implemented and found to reduce the accident rate. This would create strong incentives for road authorities not to introduce measures that would not be expected to reduce the accident rate and to evaluate rigorously whether measures implemented did in fact reduce the accident rate. A potential problem would be that a low number of accidents would make it difficult to evaluate the effects of small road safety schemes at a local level. To create a basis for meaningful evaluation, all projects of the same nature should therefore be pooled into a national data base. Evaluation studies should be performed by an independent body employing state-of-the-art techniques. Findings should always be published. ## 5. Discussion Road safety has been greatly improved in many highly motorised countries the past 40 years, following a peak in the number of road accident fatalities around 1970. However, the current Table 2 External costs of use of motor vehicles on public roads in Norway. NOK per kilometre of driving. | Traffic environment | Type of road | Marginal external costs of motorised travel – NOK per vehicle kilometre (1 NOK = 0.12 Euro in May 2009) | | | | |---------------------|------------------------|---------------------------------------------------------------------------------------------------------|----------------|---------------|---------------| | | | Accidents | Global warming | Air pollution | Traffic noise | | Rural | Motorway, 100 km/h | 0.224 | 0.176 | 0.047 | 0.000 | | Rural | Motorway, 90 km/h | 0.206 | 0.176 | 0.047 | 0.000 | | Rural | Two lane road, 80 km/h | 0.750 | 0.176 | 0.047 | 0.000 | | Rural | Two lane road, 70 km/h | 0.700 | 0.176 | 0.047 | 0.000 | | Rural | Two lane road, 60 km/h | 0.650 | 0.176 | 0.047 | 0.000 | | Urban, small city | Two lane road, 50 km/h | 0.900 | 0.176 | 0.173 | 0.510 | | Urban, major city | Two lane road, 50 km/h | 0.900 | 0.176 | 0.397 | 0.518 | number of fatalities is still regarded as unacceptably high in most countries and ways of improving the efficiency of road safety policies are sought. Policy analyses indicate that, at least in Norway and Sweden, current road safety priorities are not as effective as theoretically possible, i.e. ineffective measures continue to be used and not all cost-effective measures are introduced. Cost-benefit analyses do not seem to generate sufficient incentives to implement cost-effective road safety measures. The purely monetary incentives for improving road safety facing households, business firms and the health care sector are weak. Most of the monetary benefits of improving road safety as estimated in costbenefit analyses represent a hypothetical demand for improved road safety. To generate stronger incentives for improving road safety, this hypothetical demand needs to be converted to an actual demand. In principle, this is now becoming possible in the form of road pricing systems in which road users pay all costs of road use. By applying information technology, it is in principle even possible to device road pricing systems that are responsive to road user behaviour. As an example, a computer recording speed would make it possible to put a price tag on speeding by applying known relationships between speed and the risk and severity of accidents. In a fully implemented road pricing system, road authorities would get all their funding from fees paid by road users. The level of service offered to road users would then depend directly on how much road users were willing to pay. Road authorities could test this by offering alternative packages of measures carrying different price tags. Successful road safety measures would lead to lower road user charges at a later date. If comprehensive road pricing were introduced, there would no longer be a need for cost-benefit analysis. The provision of road safety would ideally speaking match the demand for it, resulting in an optimal level of safety. Road users would be rewarded for improving safety by paying less for the use of roads; the safer the roads, the lower the road user charges. The system would be fair in sense that money would be raised from those who benefitted from the improvements. There are, however, several problems related to road pricing that need to be considered carefully before introducing it. More specifically, the following problems need to be discussed: - 1. Acceptability of the system and the need for designing it so that it does not impose inequitable financial burdens on road users. - 2. Whether a detailed monitoring of individual behaviour represents an unacceptable invasion of privacy. - 3. How to fund the costs for starting up the system. - 4. The prices to be charged by the system are not very precisely known. - 5. The need for charging prices which are higher than the marginal costs of road use. - 6. How to dispose of the revenue generated by the system. It is well known that road pricing is very unpopular and not always accepted by road users [\(Button and Verhoef, 1998; Schade](#page-6-0) [and Schlag, 2003\)](#page-6-0). Road pricing is often met with the objection that road users are already paying the societal costs of transport in terms of taxes on vehicles and motor fuel. At the aggregate level, this may well be correct, but the taxes imposed on vehicles and fuel do not reflect the marginal costs of driving. If correctly designed, a road pricing system would generate sufficient revenue to operate and extend the road system and compensate for the external effects of road use. To keep the system revenue neutral and to prevent it from adding to the total costs of keeping and operating a motor vehicle, offsetting changes in taxes on the purchase and ownership of motor vehicles, as well as motor fuel taxes could be introduced. The total economic burden placed on households and businesses would then remain unchanged. As discussed in this paper, the system would include a fairly detailed monitoring of road user behaviour. This is intended to generate incentives for safer behaviour, since unsafe road user behaviour is a major road safety problem. A detailed monitoring of road user behaviour may, however, be regarded as an invasion of privacy. There are legitimate concerns that the data generated by the system could be abused. If, as an example, a road user forgot to use the indicator when turning right at a junction, and then struck a pedestrian – who did not believe the car was turning as it did not indicate that it would – this fairly minor error could be used by an insurance company to deny the driver coverage for the damages to the pedestrian. This is clearly a serious concern, and the system should be designed so as to prevent such abuses. One way of doing so, would be to require the informed consent of every road user before data generated by the system were made available to, for example, insurance companies. There would be significant initial costs to start-up a system of road pricing. Installing driving computers and digital maps in every motor vehicle might cost, perhaps, a few hundred Euros per vehicle. Many road users would regard these expenses as a complete waste; they would see no benefits of a system whose most obvious effect would be to make them pay more for using the roads. If government, based on a careful impact assessment, found the benefits of road pricing to clearly exceed the costs, the possibility of subsidising the start-up cost of the system should be considered; in other words government would pay the start-up cost and road users would get it for free. The prices to be charged by a road pricing system are not very well known. In an initial phase, equilibrium prices would have to be determined by a process of trial-and-error. At the outset, prices should be based on the results of surveys of the willingness-to-pay for improving road safety, saving travel time and improving the environment. The system would then, in a sense, represent an empirical testing of the validity of the currently mostly hypothetical valuations of safety, travel time and environmental amenities. Willingness-to-pay surveys have been criticised for hypothetical bias: since respondents do not have to pay the amounts stated, they can be tempted to state higher amounts than they are really willing to pay, in order to be politically correct or satisfy their own notions of what a good citizen should do. There is, therefore, a significant risk that prices based on the results of willingness-to-pay surveys will be too high and that few will actually be willing to pay these prices. The result might be a reduced traffic volume – which by itself might improve road safety – but which would not be the major objective of the system. Can a system of road pricing fund all the costs of maintaining, improving and expanding the road system? Jansson (1992) discussed this question in 1992, asking if it was at all conceivable that roads could be run commercially, by road users paying for using the roads. He concluded that this was in principle possible, but that strict marginal cost pricing would not be feasible, as it would lead to huge deficits. This is because there are large fixed costs in any road system; strict marginal cost pricing would not cover all fixed costs. To cover the fixed costs, prices higher than the marginal costs would have to be charged; alternatively government would have to subsidise the fixed costs. The revenue generated by a road pricing system should be spent in a way that did not undermine or distort the incentives generated by the system. The income generated by the road pricing system would be allocated between different recipients. Road authorities would get what they proposed in their budgets, provided road users were willing to pay for these budgets. The health care sector would be reimbursed for treating accident victims. Victims would be compensated both by insurance companies and the public sector, as is the case today. An option that deserves consideration is to overcharge speeding and other violations in order to generate a surplus. This surplus would then be paid back to law-abiding road users in order to reward them for their safe behaviour. That would make the reward for safe behaviour more tangible than it is when it manifests itself merely in the form of paying lower charges than violators do. Moreover, part of a surplus could be used to fund police enforcement. #### 6. Conclusions The main conclusions of the analyses presented in this paper can be summarised as follows: - 1. Current road safety policy is inefficient: not all road safety measures whose benefits are greater than the costs are implemented, and resources are spent on measures whose benefits are smaller than the costs. - 2. Cost–benefit analysis does not by itself generate sufficient incentives to implement cost-effective road safety measures. One reason for this is the fact that most of the benefits of improving road safety consist of gains in welfare that are not readily payable by means of market transactions. These gains are nevertheless real and improve social welfare. - 3. Households, business firms and the health sector in general face very weak incentives to improve road safety. - 4. Car manufacturers face incentives to improve safety to the extent that greater safety promotes the sales of cars. - 5. Road authorities face incentives to improve road safety, but these are of a general nature and do not necessarily favour using the most cost-effective measures to improve road safety. - 6. Road pricing is rapidly becoming more technically feasible. In principle, it is possible to design a system for road pricing that will generate incentives for improving road safety. - 7. There are, however, many potential problems associated with road pricing that need careful discussion before introducing such a system. ## References Alfaro, J.-L., Chapuis, M., Fabre, F. (Eds.), 1994. COST 313. Socioeconomic Cost of Road Accidents. Final Report of the Action. EUR 15464 EN. European Commission, Brussels. - Andersson, H., 2005. Willingness to Pay for a Reduction in Road Mortality Risk. Evidence from Sweden. Lund Economic Studies Number 126. Department of Economics, Lund University, Lund. - Broughton, J., 2008. Car driver casualty rates in Great Britain by type of car. Accident Analysis and Prevention 40, 1543–1552. - Button, K.J., Verhoef, E.T. (Eds.), 1998. Road Pricing, Traffic Congestion and the Environment. Edward Elgar, Cheltenham. - ECMT, 2001. Economic Evaluation of Road Traffic Safety Measures. Round Table 117. ECMT Publications, Paris. - Elvik, R., 1993. Hvor rasjonell er trafikksikkerhetspolitikken? Rapport 175. Transportøkonomisk institutt, Oslo. - Elvik, R., 1994. The external costs of traffic injury: definition, estimation and possibilities for internalization. Accident Analysis and Prevention 26, 719–732. - Elvik, R., 1995a. Explaining the distribution of state funds for national road investments between counties in Norway: engineering standards or vote trading? Public Choice 85, 371–388. - Elvik, R., 1995b. An analysis of official economic valuations of traffic accident fatalities in 20 motorized countries. Accident Analysis and Prevention 27, 237– 247. - Elvik, R., 1997. A Framework for Cost–Benefit Analysis of the Dutch Road Safety Plan. Report 380. Institute of Transport Economics, Oslo. - Elvik, R., 1999. Bedre trafikksikkerhet i Norge. Rapport 446. Transportøkonomisk institutt, Oslo. - Elvik, R., 2001. Improving road safety in Norway and Sweden: analysing the efficiency of policy priorities. Traffic Engineering and Control 42 (1), 9–16. - Elvik, R., 2003. How would setting policy priorities according to cost-benefit analyses affect the provision of road safety? Accident Analysis and Prevention 35, 557–570. - Elvik, R., Christensen, P., Amundsen, A.H., 2004. Speed and Road Accidents. An Evaluation of the Power Model. Report 740. Institute of Transport Economics, Oslo. - Elvik, R., 2005. Speed and road safety. Synthesis of evidence from evaluation studies. Transportation Research Record 1908, 59–69. - Elvik, R., 2006. Are individual preferences always a legitimate basis for evaluating the costs and benefits of public policy? The case of traffic law enforcement. Transport Policy 13, 379–385. - Elvik, R., 2007. Prospects for Improving Road Safety in Norway. Report 897. Institute of Transport Economics, Oslo. - Elvik, R., 2008a. Road safety management by objectives: a critical analysis of the Norwegian approach. Accident Analysis and Prevention 40, 1115–1122. - Elvik, R., 2008b. Dimensions of road safety problems and their measurement. Accident Analysis and Prevention 40, 1200–1210. - Elvik, R., 2009A. The trade-off between efficiency and equity in road safety policy. Safety Science 47, 817–825. - Elvik, R., 2009B. Revisjon av realøkonomiske ulykkeskostnader. Arbeidsdokument SM/2063/2009. Transportøkonomisk institutt, Oslo. - Elvik, R., Amundsen, A.H., 2000. Improving Road Safety in Sweden. Main Report. Report 490. Institute of Transport Economics, Oslo. - Elvik, R., Veisten, K., 2005. Barriers to the Use of Efficiency Assessment Tools in Road Safety Policy. Report 785. Institute of Transport Economics, Oslo. - Elvik, R., Muskaug, R., Vaaje, T., 1984. Virkninger av alternative strategier for å øke trafikksikkerheten i Norge. Rapport. Transportøkonomisk institutt, Oslo. - Erke, A., Elvik, R., 2006. Effektkatalog for trafikksikkerhetstiltak. Rapport 851. Transportøkonomisk institutt, Oslo. - ETSC, 2009. Road Safety Performance Index Flash 13. Boost the Market for Safer Cars Across the EU. European Transport Safety Council, Brussels. - Fridstrøm, L., Elvik, R., 1997. The barely revealed preference behind road investment priorities. Public Choice 92, 145–168. - Helland, L., Sørensen, R.J., 2009. Geographical redistribution with disproportional representation: a politico-economic model of Norwegian road projects. Public Choice 139, 5–19. - Jansson, J.O., 1992. Vägväsendet i samhällsekonomisk belysning. VTI meddelande 701. Väg-och trafikinstitutet, Linköping. - Jansson, J.O., 1994. Accident externality charges. Journal of Transport Economics and Policy 28, 31–43. - Jansson, J.O., Nilsson, J.-E., 1989. Spelar samhällsekonomiska kalkyler någon verklig roll i vägväsendet? Ekonomisk Debatt 2, 85–95. - Koopmanschap, M.A., van Ineveld, B.M., 1992. Towards a new approach for estimating indirect costs of disease. Social Science and Medicine 34, 1005–1010. Koopmanschap, M.A., Rutten, F.F.H., van Ineveld, B.M., van Roijen, L., 1995. The friction cost method for measuring indirect costs of disease. Journal of Health - Economics 14, 171–189. Martin, J.-L., Lenguerrand, E., 2008. A population based estimation of the driver protection provided by passenger cars: France 1996–2005. Accident Analysis - and Prevention 40, 1811–1821. Nellthorp, J., Mackie, P.J., 2000. The UK roads review – a hedonic model of decision making. Transport Policy 7, 127–138. - Nilsson, J.-E., 1991. Investment decisions in a public bureaucracy: a case study of Swedish road planning practices. Journal of Transport Economics and Policy 25, 163–175. - Nyborg, K., 1998. Some Norwegian politicians' use of cost-benefit analysis. Public Choice 95, 381–401. - Odeck, J., 1991. Om nyttekostnadsanalysenes plass i beslutningsprosessen i vegsektoren. Sosialøkonomen 3, 10–15. - Odeck, J., 1996. Ranking of regional road investment in Norway: does socioeconomic analysis matter? Transportation 23, 123–140. - Odeck, J., 2009. What determines decision-makers' preferences for road investments? Evidence from the Norwegian road sector. Transport Reviews, 1–22, iFirstArticle. - OECD, 2008. Towards Zero. Ambitious Road Safety Targets and the Safe System Approach. OECD Transport Research Centre, Paris. - Osmundsen, P., Aven, T., Vinnem, J.E., 2008. Safety, economic incentives and insurance in the Norwegian petroleum industry. Reliability Engineering and System Safety 93, 137–143. - Pearce, D., Atkinson, G., Mourato, S., 2006. Cost–Benefit Analysis and The Environment. Recent Developments. OECD Publishing, Paris. - Rundmo, T., Söderqvist, A., 1994. Economic assessment of occupational injuries in furniture industries. Safety Science 18, 33–43. - Samstad, H., Killi, M., Hagman, R., 2005. Nyttekostnadsanalyse i transportsektoren: parametre, enhetskostnader og indekser. Rapport 797. Transportøkonomisk institutt, Oslo. - Schade, J., Schlag, B. (Eds.), 2003. Acceptability of Transport Pricing Strategies. Elsevier, Amsterdam. - Schelling, T.C., 1968. The life you save may be your own. In: Chase, S.B. (Ed.), Problems in Public Expenditure Analysis. The Brookings Institution, Washington, DC, pp. 127–176. - Statistics Norway, 2009. Survey of Household Consumption Expenditures (in Norwegian). Statistisk sentralbyrå, Oslo-Kongsvinger.