Precipitation, profits, and pile-ups

• Andrew Leigh
• Centre for Economics Policy Research

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15 January 2010This paper estimates the impact of increased rainfall on traffic accident fatalities.

This focus is motivated by two factors. First, in OECD countries, road traffic crashes are the leading cause of death for people aged 15-24. Second, the social welfare cost of traffic deaths is largely ignored in GDP calculations. If rainfall significantly affects traffic deaths, then this should be taken into account in considering the impact of rain on social welfare.

In considering the economic impacts of climatic changes, economists frequently use annual national income as a proxy for social welfare. This paper demonstrates that such studies suffer from a significant bias, arising from the fact that these models typically ignore changes in mortality rates. Using panel data from Australia, the author shows that rainfall lowers traffic deaths, suggesting that the standard approach may underestimate the true economic cost of droughts.

Image: DanieVDM / flickr