The incentive effects of no-fault automobile insurance

This paper presents a theoretical and empirical analysis of the effects of no-fault automobile insurance on fatal accident rates. As a mechanism for c ompensating the victims of automobile accidents, no-fault insurance has sev eral important advantages over the tort system. However, by restricting acc ess to tort, no-fault may weaken incentives for careful driving and lead to higher accident rates. We conduct an empirical analysis of automobile acci dent fatality rates in all U.S. states over the period 1968-94, controlling for the potential endogeneity of no-fault laws. The results support the hy pothesis that no-fault is significantly associated with higher fatal accide nt rates than tort.