Crash Costing

Road crashes result in a lot of pain and suffering, but they also have an economic cost. The economic consequences of road crashes is estimated to be between 1% and 3% of the respective GNP of the world countries, with a total in excess of $500 billion.

Being able to calculate the cost of a crash means that the potential benefit of solutions that would reduce the number of crashes can be calculated. This provides a way to compare the benefits of proposed crash solutions with the costs of implementing them in order to provide the maximum benefit for the money available for investment (an approach known as a cost-benefit analysis). Crash costing also provides a way to compare the total impact of crashes in a local area, country, or region.

The World report on road traffic injury prevention gives the estimated worldwide cost of crashes. The report mentions that the costs in low to middle-income countries are probably seriously underestimated because not all road crashes are reported to authorities. Total costs were estimated at US$517.8 billion.

The two main ways used in developed countries to estimate crash cost values are the Human Capital (HC) and Willingness-to-pay (WTP) methods. The HC method works out the loss to the economy based on the cost of treating the person’s injury, loss of income, and damage to property. Some HC methods also include costs for pain and suffering caused by death or injury. Even when this is added into the calculation, it is still considered that the approach underestimates the true cost of a crash as it concentrates on economic costs.

The WTP approach is based on the results of surveys that ask people how much they would pay to reduce specific types of risk. It is therefore measuring the value of prevention of road crashes, i.e. the amount that society is prepared to pay to prevent crashes. While this is considered the more theoretically sound approach because it better reflects the full social and economic costs of death and injury, it also suffers from some methodological issues (particularly the development of survey instruments, and cost of collecting appropriate data).

Although the WTP approach is recommended, it is recognised that the cost to develop this approach for an individual country might not make it viable. For this reason, the Rule of Thumb (RoT) method was developed as part of the International Road Assessment Programme (iRAP) for use in programme appraisal in low and middle-income countries. This method uses the information from countries that have already carried out WTP calculations and analyses the relationship between VSL and Gross Domestic Product (GDP) per capita. It is suggested that a reasonable rule of thumb for calculating statistical value of life is to multiply GDP per capita by 70 (with a range between 60 and 80 for sensitivity testing). The iRAP analysis also provided a method for calculating the number of serious injuries in a country as these are often significantly under-estimated in official statistics.

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For every 1km/h reduction in average speed, there is a 2% reduction in the number of crashes

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References

  • Tsolakis, D Turner, B Perovic J & Naude C 2009, Component Costs in Transport Projects to Ensure the Appropriate Valuing of Safety Effects. Austroads report AP-T125. Austroads, Sydney, Australia.