Regional Analyses

3 Economic costs of road crashes

3.1 Introduction

Apart from the humanitarian aspect of reducing road deaths and injuries in developing countries, a strong case can be made for reducing road crash deaths on economic grounds alone, as they consume massive financial resources that the countries can ill afford to lose. That said, it must of course be borne in mind that in developing and emerging nations, road safety is but one of the many problems demanding its share of funding and other resources. Even within the boundaries of the transport and highway sector, hard decisions have to be taken on the resources that a country can devote to road safety. In order to assist in this decision-making process it is essential that method be devised to determine the cost of road crashes and the value of preventing them.

The first need for cost figures is at the level of national resource planning to ensure that road safety is ranked equitably in terms of investment in its improvement. Fairly broad estimates are usually sufficient for this purpose, but must be compatible with competing sectors. For example, in a recent road safety study undertaken in Mauritius, it was shown that the annual cost of road crashes nationally was about £20 million. A series of safety improvements were outlined, which, it is estimated would reduce the cost of crashes by 5 per cent per annum (i.e. saving £1 million.). These improvements (in highway design and layout, education, training and enforcement), were estimated to cost £500,000 in a programme of measures set over a five-year period (i.e. at an average annual cost of £100,000). The average First Year Rate of Return on investment was therefore about 1000 per cent and the Benefit: Cost ratio about 10:1. High rates of return such as these are fairly common in road safety appraisals and (apart from the humanitarian aspects), illustrate the economic benefits of investing in national road safety programmes.

A second need for road crash cost figures is to ensure that the best use is made of any investment and that the best (and most appropriate) safety improvements are introduced in terms of the benefits that they will generate in relation to the cost of their implementation. Failure to associate specific costs with road crashes will almost certainly result in the use of widely varying criteria in the choice of measures and the assessment of projects that affect road safety. As a consequence it is extremely unlikely that the pattern of expenditure on road safety will, in any sense be ‘optimal’ in terms of equity. In particular, if safety benefits are ignored in transport planning then there will inevitably be associated under-investment inroad safety.

A study conducted almost a quarter of a century ago (Fouracre and Jacobs, 1977) estimated road crashes to cost on average 1 per cent of a country’s gross national product (GNP). Many countries have used this figure and international aid agencies to estimate the scale of costs incurred by road crashes but as countries have developed, a higher range, 1 to 3 per cent has been suggested by the World Bank and others for road crash costs.

Expressing crash costs as a percentage of GNP provides an albeit crude but useful approach to costing accidents, particularly on a global or regional basis. That said, there is no real substitute in individual countries to carrying out a detailed appraisal of national accident costs.

3.2 Methods available to cost road crashes

The cost of road crashes will be influenced by the valuation method used. In their papers on the cost of traffic accidents and evaluation of accident prevention in developing countries, Hills and Jones-Lee (1981, 1983) identified six different methods that have been proposed for placing a cost on road accidents. They made the point that the appropriate method to use in any particular context may depend upon the objective and priorities of those who intend to use the costs and values concerned.

The reasons for costing road accidents are most likely to be either the maximisation of national output or the pursuit of social welfare objectives (such as the minimisation of injury accidents or fatalities in relation to traffic). The only accident costings/valuation methods that appear to be directly relevant to these two objectives are:

a)   the ‘gross output’ or ‘human capital’ (HC) method (well suited to the objective of maximising the wealth of a country); and

b)    the ‘willingness to pay’ (WTP) method (especially for social welfare maximisation and for the use in cost-benefit analyses).

If accident costs and values are ultimately intended for use in conventional cost-benefit analyses in order to determine the most efficient way of allocating scarce financial resources, then the most appropriate method to use by far is the willingness to pay approach. However, Whilst this method has been adopted in countries such as UK, USA, New Zealand and Sweden, the difficulty of obtaining reliable empirical estimates has been considered.

It seems unlikely that reliable willingness-to-pay costs and values will be available for use in most Asian and African countries for some time. (Certainly until detailed studies of its use and application have been carried out in one or two countries). It was recommended that the gross output approach is used to cost road accidents in the countries of Africa and Asia. However, in order to try to capture some of the ‘humane’ considerations reflected in the willingness to pay approach, gross output values should be augmented by a further allowance for ‘pain, grief and suffering’ of those involved in road crashes. This, in fact was the approach employed in the UK prior to the recent adoption of the willingness to pay approach.

3.3 Results of crash costing procedures

A summary of results from a range of HMCs and LMCs is shown in Table 10. For a critique on costing road accidents, please see TRL Overseas Road Note 10.

A recent World Bank Working Paper on Road Traffic Safety in the Europe and Central Asia Region estimated crash costs per country on the basis of average EU crash costs. Costs were estimated according to their GNP per capita figure (i.e. if a country’s GNP per capita was 1/10 that of the EU’s then crash costs were assumed to be 1/10 average EU crash costs). Total costs were estimated on the basis of the number of reported fatalities and injuries with a standard casualty rate per crash. This approach estimated crash costs to range from1.1 per cent (Georgia, Turkmenistan) to 3.3 per cent (Slovenia). The overall (unweighted) average was almost 2.0per cent (Blomberg, 1999).

It should be noted that the valuations differ in their accommodation of un-reported crashes. For instance, the USA’s estimate is for unreported crashes while in UK, unreported damage-only crashes are included but the valuation of injury crashes is limited to those reported to the police. The latter is believed to be the case for most costings in HMCs.

3.4 Summary

From the above table it can be seen that road crash costs, expressed as a percentage of GNP range from 0.3 per cent in Vietnam to almost 5 per cent in USA, Malawi and Kwa Zulu, Natal. Overall it does appear that in most countries, costs exceed 1 per cent of GNP that may now be considered to be an under-estimate of national accident costs. However, the figures also indicate that costs as a percentage of GNP may be lower in less developed countries and therefore caution should be exercised in moving from 1 per cent of GNP to a much higher level for developing countries.

The following table provides a crude estimate of global and regional costs assuming that the annual cost of road crashes is about 1 per cent in developing countries, 1.5 percent in transitional countries, and 2 per cent in highly motorised countries.

Table 10 -  Recent estimates of economic costs of road crashes

Table 11 implies that road crash costs may be of the order of US$65 billion in developing and transitional countries, US$453 billion in highly motorised countries, making a crude estimated total of US$518 billion worldwide.

Table 11 - Road crash costs by region (US$ billion)