UC Berkeley

Heavier vehicles are safer for their own occupants but more hazardous for other vehicles. Simple theory thus suggests that an unregulated vehicle fleet is inefficiently heavy. Using three separate identification strategies we show that, controlling for own-vehicle weight, being hit by a vehicle that is 1000 pounds heavier generates a 40-50% increase in fatality risk. These results imply a total accidentrelated externality that exceeds the estimated social cost of US carbon emissions and is equivalent to a gas tax of $0.97 per gallon ($136 billion annually). We consider two policies for internalizing this external cost, a weight-varying mileage tax and a gas tax, and find that they are similar for most vehicles. The findings suggest that European gas taxes may be much closer to optimal levels than the US gas tax. © The Author 2013. Published by Oxford University Press on behalf of The Review of Economic Studies Limited.