Positive externalities from active car safety systems

Policymakers around the globe have opted for high levels of regulation of the market for vehicle safety and declared many vehicle safety systems as mandatory for new cars. In this paper we argue that the delivered justifications for these policies are at least questionable. We add a completely new argument to the discussion and show in a simple theoretical model that vehicle safety systems might cause positive externalities. Based on a large dataset of traffic accidents in Germany we show that the these externalities in fact occur. Based on our estimation results we show that for anti-lock-brakes (ABS) and electronic stability programmes (ESP) the average expected externality exceeds the price of these systems. Thus, the obligation to equip any new car with both ABS and ESP is adequate from an allocative point of view although the official justification for the introduction of these regulations are flawed.