Valuation of Accident Reduction

Part of Toolkit for the Economic Evaluation of World Bank Transport Projects

(Institute for Transport Studies, University of Leeds, 2003)

In developing countries studies have revealed that road accidents are the leading or second most important cause of death. Road accidents cause significant social and economic costs (typically between 1 and 3 percent of GNP) [[1]]. They also result in the use of a high proportion of medical facilities and the scarce depletion of foreign exchange. Attention is therefore focussed on designing transport infrastructure that is safe. Unfortunately, the safest form of transport infrastructure is often not the least (capital) cost option. For example, on a road the provision of separate pedestrian and animal footpaths, or the provision of lay-bys or widened shoulders that allow villagers to sell local produce are safer, but more expensive, than the non-provision of such facilities.

The failure to associate explicit costs to road accidents will therefore lead to wide differences in the assessment of projects that will affect road safety and at a national level is likely to lead to an under investment in road safety.

The objective of this note is to advise on a desired and workable method that can be used to place values on accident reduction and to do so has drawn from two main publications Jacobs (1995) [[2]] and Cropper (2003) [[3]]. Methods of achieving accident reduction are not discussed and the reader is referred to the World Bank’s Roads and Highways Road Safety Knowledge Base [[4]] and texts such as TRL Overseas Road Note 5 [[5]] and Infrastructure Notes RD-6 and RD-9 [1] [[6]].

The first section of this note identifies the need to categorise accidents if accidents are to be valued and suggests a method of categorisation. Section 2 identifies the components of cost that make up total accident costs, whilst Sections 3 and 4 suggest methods that can be used to value casualty related costs and incident related costs. Sections 5 discusses how accident valuation may vary between modes and suggests that accident valuations are consistent with those utilised in other World Bank projects (e.g. health projects). Sections 6 and 7 discuss the manner that accident costs vary with time and the relationship between the valuation and the accident prediction m model. Section 8 summarises the principal recommendations of the note.

1 Accident categorisation

In order to provide a valuation of an accident it is necessary to have a consistent set of definitions for casualty severities; accident severities; and the various components of costs associated with them within the country concerned.

A well accepted set of categories for the classification of accidents is that detailed in Box 1.

BOX 1: Accident Classification

Casualty severities:

· ‘fatality’ - death within 30 days for causes arising out of the accident;

· ‘serious injury’ - casualties who require hospital treatment and have lasting injuries, but who do not die within the recording period for a fatality;

· ‘slight injury’ - casualties whose injuries do not require hospital treatment or, if they do, the effects of the injuries quickly subside.

Accident severities:

A ‘damage-only’ accident is one in which there are no casualties. A ‘fatal’ accident is one in which there is at least one fatality. A ‘serious’ accident is one in which there is at least one serious casualty but no fatalities. A ‘slight’ accident is one in which there is at least one slight casualty but no serious injuries and no fatalities.

2 Components of Total accident Costs

Accident costs are often thought about as a combination of items, some of which are resource costs incurred by society as a consequence of the accident (emergency services, medical aid, material damage, etc), some of which represent a part of the individual’s expected contribution to production which is no longer possible due to their injuries (i.e. lost output) and some of which represents the individual’s personal loss of welfare (or ‘human costs’). These human costs are sometimes characterised as ‘pain, grief and suffering’.

A list of potential accident cost items would be:

· material damage - damage to property (vehicles, their contents, pedestrians and cyclists’ property, buildings and street furniture, etc - also engineers/ assessors’ fees);

· emergency services - police, fire and ambulances;

· legal and court costs;

· insurance administration;

· medical costs (including hospital treatment);

· lost economic output;

· delays to other transport users (passengers or freight);

· welfare loss (consumption);

· reductions in leisure time;

· willingness to pay to reduce risk; and

· human costs including pain, grief and suffering.

If this list were used as the basis for an appraisal value, there would be extensive double-counting. Box 2 sets out an accepted approach that avoids double counting for casualty related costs and for accident or incident related costs.

BOX 2: Components of Accident cost

Casualty-related costs:

· medical and healthcare costs incl. administration

· lost output

· human costs - pain, grief and suffering.

Accident-related costs:

· material damage

· police and fire services

· insurance administration

· legal and court costs

Delays to other transport users should also be incorporated within the appraisal; however, to avoid double counting, these costs or benefits should be included within the travel time saving analysis of the appraisal.

Total costs:

The total appraisal value of an accident is the sum of the casualty-related and accident-related costs.

3 METHODS TO COST ACCIDENT CASUALTIES

Methods used to value the economic cost of an accident casualty can be categorised into six approaches. These approaches are described in Jacobs (1995) [2] and summarised in Box 3. The methods focus on different aspects of the impact of a casualty with respect to specific aspects of the economy or society in general. As these methods can also give rise to substantially different estimates of costs and values, the choice of which method to use is dependent upon the objectives of the study.

The primary goals of World Bank interventions are reductions in poverty and improvements in social inclusion. As such the correct question to put from a policy viewpoint is “How much should society be willing to pay for a measure which would prevent the loss of one (statistical) life?”. Of the methods in Box 3, C and D are unsuitable for answering this question. B provides the answer to the subtly different question “How much would the rest of society lose as a result of the loss of one (statistical) life?” whilst Method E is interesting but unlikely to give clear and consistent answers. The two methods likely to be most useful are therefore the “Gross Output” and “Willingness to Pay” methods.

BOX 3: Methods of Assessing the cost of a fatal casualty

A) The “gross output” or human capital approach: In this method the cost of a fatal casualty is the loss of future output, which equivalent to foregone earnings.

B) The “net output” approach: the cost of an accident is equivalent to the “gross output” figure minus the discounted value of the victim’s consumption

C) The life-insurance approach: the cost of an accident is directly related to sums typical individuals are willing to insure their own lives.

D) The court award approach: With this approach, the sums awarded by the courts to the surviving dependants of those killed or injured are regarded as an indication of the cost that society associates with the road accident.

E) The “implicit public sector valuation” approach: With this method an attempt is made to determine the costs and values that are implicitly placed on accident prevention in safety legislation or in public sector decisions taken either for or against investment programmes that affect safety.

F) The “value of risk change” or “willingness to pay” approach: with this method the value of a given improvement in safety (i.e. a reduction in risk) is defined in terms of the aggregate amount that people are prepared to pay for it. That is the value of a particular safety improvement is defined as the sum of all the amounts that people (affected by the improvement) would be willing to pay for the (usually very small) reductions in risk provided by that improvement.

Source: Jacobs(1995) [2]. See also Hills and Jones-Lee (1981, 1983) [[7], [8]])

The Willingness To Pay approach is based on the fundamental premise that decisions made in the public sector concerning the allocation of scarce resources should reflect the preferences and wishes of those citizens who will be affected by the decisions and is therefore especially useful for social welfare maximisation and for use in cost-benefit analysis.

Obtaining Willingness To Pay (WTP) estimates for accident casualty costs can, however, be quite complex and this is particularly true in developing countries. In such situations it may therefore be necessary to use the simpler “Gross Output” or “Human Capital” approach. The Gross Output approach is however best suited as an indicator for the objective of maximising the wealth of a country.

Willingness To Pay Approach to Valuing a Casualty

The Willingness to Pay approach should capture the value of the pain and suffering avoided, as well as the value of time lost due to illness (both leisure and work time) and the costs of medical treatment. If some of these costs are not borne by the individual, and are therefore not reflected in their WTP the value of the avoided costs must be added to the WTP to measure the social cost to society. In practice, therefore it is often necessary to add the medical cost of illness and the loss of productivity (estimated as in the Gross Output approach) to the WTP estimates [3].

The weaknesses of the WTP approach, particularly with respect to estimating robust values within a developing country, are that the complexity of the WTP survey means that only adults are surveyed, even though children form a very high percentage of those killed or injured in developing countries. Additionally, it may be difficult to value changes in risk in developing countries because of the difficulty experienced by respondents when placing a monetary value on risk when daily transactions do not necessarily involve money exchange [2]. Lastly respondents appear to face difficulties in consistently valuing small probabilities and therefore changes between small levels of risk [3]. In practice weaknesses associated with applying the WTP approach in developing countries means that the Gross Output method is often the preferred approach to valuing a casualty.

Gross Output or Human Capital Approach to Valuing a Casualty

The Gross Output approach utilises measured data in the country in which the transport investment will take place to obtain estimates of lost output and medical and healthcare costs including administration.

Information is therefore required on:

· Average wage rates, adjustments may have to be made for self employed agricultural workers and “unpaid” workers such as housewives;

· Length of absence from work as a result of the accident (by casualty severity);

· In-patient hospital costs including average length of stay in hospital and average cost of treatment (by casualty type)

· Out-patient costs including the number of out-patient visits and average costs of such a visit, average costs of general practitioners and the ambulance service.

The human costs of pain, grief and suffering cannot be estimated from an analysis of observed data using the Gross Output method. Table 1 presents the values for pain, grief and suffering detailed in TRL Overseas Road Note 10. These percentages should be used in the absence of more localised data. It should be noted that the values represented by these percentages are essentially arbitrary.

Table 1: Human Costs as A Percentage of Quantifiable Costs

Casualty Type	Value of Human Costs as a Percentage of quantifiable costs
Fatal casualty	38%
Serious casualty	100%
Slight casualty	8%

Source: Jacobs (1995) [2]

Box 4 presents a case study summary of an application of the Gross Output method. A full description of the case study is detailed in TRL Overseas Road Note 10 (Jacobs, 1995 [2]).

4 Accident Or Incident Related costs

As presented in Box 3 the principal accident or incident related costs, as opposed to casualty related costs, are: material damage, police and fire services, insurance administration and legal and court costs. Delays to other vehicles and to freight, where significant, should also be incorporated into the appraisal, though to avoid double counting these should form part of the travel time analysis.

Measured data from the country under study should be obtained to provide local values for accident related costs. TRL Overseas Road Note 10 (Jacobs, 1995 [2]) presents detailed advice and worked case study examples on the types of information that are required to develop such estimates (with respect to a road accidents). Typical data would include:

· Information from insurance companies, regarding accident types and costs particularly if a significant percentage of vehicles have insurance;

· Information regarding the costs of replacement parts for vehicles and labour rates;

· Information from insurance companies and local authorities regarding damage to fixed property including walls, lamp standards, signs, etc.; and

· Information from the police regarding the administrative time associated with accidents

BOX 4: GROSS OUTPUT METHOD – CYPRUS CASE STUDY

This case study is drawn from work undertaken by the then Overseas Unit TRRL in 1984. Although the time available was little more than two weeks, the appraisal illustrates the approach that can be used to cost road accidents in a developing country.

VEHICLE REPAIR COSTS

The cost of repair of vehicles involved in road accidents in Cyprus was obtained by collecting limited information from insurance companies. The figures collected suggested that damage costs in injury accidents are about twice those incurred in non-injury accidents:

(a) Average cost of damage in injury accidents in Cyprus in 1984 = £1130

(b) Average cost of damage in damage-only accidents in Cyprus in 1984 = £530

The cost of repairs in fatal and serious accidents tends to be greater than in slight accidents, and adjustment figures derived in the UK were used.

ESTIMATING LOST OUTPUT

The `Gross Output' method requires an estimate of current average wage rates (£15/day) and lost days of output.

- Fatal casualty: the average age of a person killed in a road accident was 43 years, whilst the average retirement age was estimated to be 65.5 years, implying 23 yrs lost output. Future year output was discounted with a 9% discount rate;

- Serious casualty: average length of hospital stay was approximately 13 days with a further 24 days, on average, spent recovering at home implying 37 days lost output; and

- Slight casualty: on average 2 days were lost.

The average number of casualties per accident was 1.83 giving:

- Lost Output in fatal accident = £77,775

- Lost Output in serious accident = £1,015

- Lost Output in slight accident = £55

COST OF MEDICAL TREATMENT

The economic or resource costs of medical treatment were collected from the Ministry of Health and suggested that the overall average cost for one days in-patient treatment (including staff costs, cost of medicines, operations and overheads etc.) was £53. For each accident there was also an estimated share of the capital cost of the hospital, ambulance and administration costs of £23.

POLICE AND ADMINISTRATION COSTS

Values based on those derived in the UK were used which suggest that police administration costs represent about 0.2% of the cost of fatal accidents, 4.0% for serious and 14.0% for slight accidents.

SUMS TO REFLECT PAIN, GRIEF AND SUFFERING

A notional uplift sum to reflect pain, grief and suffering based on UK values at the time were used (i.e. fatal accidents 38%; serious accidents 100%; and slight accidents 8%).

TIME DELAYS AND OUT OF POCKET EXPENSES

Time delays to vehicles following an accident or out of pocket expenses to the casualty or to relatives and friends could not be estimated.

Source: Jacobs (1995) [2]

5 Variation Between Modes

Casualty Related Costs

Casualty related costs are mode independent. That is the cost of a fatality is the same irrespective of whether the person was travelling by bicycle, car or train or working in a port.

This is consistent with approaches elsewhere. The rationale behind the approach is that for a given individual the WTP to avoid risk should be the same irrelevant of the mode they are travelling or the location in which they are working. It is a consequence of the individual’s social preferences rather than an outcome of their current activity. Obviously individuals with similar attitudes to risk may favour one mode or activity over another, thus meaning that the average attitude to risk (and therefore WTP) of users of one mode of transport may differ from users of another mode. For example in a congested urban environment risk averse people may prefer walking to cycling as there is a degree of segregation between pedestrians and the traffic flow whilst cyclists mix with the traffic flow. However, the use of different values for different individuals within the appraisal is generally politically unacceptable as it would suggest that one individual is valued by society more than another individual.

Accident related Costs

Accident related costs (such as damage to vehicles and administrative costs) will vary between modes. One would for example expect the cost of the damage to a train to exceed the damage to a car. Additionally, in environments where animals (such as donkeys or bullocks) are involved in an accident the costs of the animals should also be included in the accident costs.

6 Growth in Resource value of Accident costs

Accident costs are forward looking and their resource value will alter with time. It is recommended that accident costs are growthed using the same growth assumptions as are applied to the value of time (see Note Value of Time Savings [Link]). Typically this will be the expected income growth for the country.

7 ACCIDENT PREDICTION

Accident Prediction Model

The focus of this note has been on the valuation of accidents. In determining total project related accident costs and benefits a model predicting the number of accidents that will occur in the future is also needed.

Accident prediction models require extensive data to support them. There are three key relationships within an accident model that are required:

(i) An understanding of the basic accident rates and their relationship to current traffic volumes and design standards;

(ii) An understanding of the future accident rates and their relationship to current traffic volumes, particularly if accident remedial measures have been implemented; and

(iii) An understanding of the relationship between accident rates and the growth in traffic and how changes in behaviour over time may influence for design standards

At the minimum it is expected that a locally calibrated accident prediction model should be developed that relates total annual traffic volumes with the numbers of accidents. Accident rates are often quoted in terms of the number of accidents per million vehicle kilometres travelled within a year. A stand-alone accident prediction model used in World Bank studies is described in Infrastructure Note RD-5 [[9]], alternatively the Highway Demand Management System software (HDM 4) is being developed to incorporate accident modelling [[10]].

The accident rates suggested by the predictive model should be utilised in both the Do Minimum and the Do Something situation unless there is strong evidence to suggest that the improved transport facility will have a different accident rate (accidents per vehicle kilometre travelled) from that currently exhibited.

It should be noted that country specific behaviour including the manner that slow traffic (e.g. pedestrians, cyclists, donkeys and bullocks) interact with motorised traffic means that the transfer of accident rates from one country to another often has a very tenuous basis in reality. Such a transfer of accident rates should be fully explained and defended in the documentation that supports the economic appraisal.

Conversion of Casualty and Accident Related Costs to the Units of the Accident Model

An accident prediction model will generally predict the number of accidents that will occur. Usually an accident will involve more than one casualty. In the Cyprus case study presented in TRL Overseas Road Note 10 [2] the average number of casualties per accident is 1.83. This when calculating the total economic costs of accidents forecast by the accident prediction model the economic cost per accident should reflect the average number of casualties by severity per accident type (fatal, serious, slight or damage only). An example is contained in Table 2.

Table 2: Example of Calculation of Total Costs for a fatal Accident

	Cost (US$)	Average Number per Accident	Total (US$)
Casualty Costs
Fatal casualty related costs	150,000	1.1	165,000
Serious casualty related costs	10,000	0.5	5,000
Slight casualty related costs	1,500	1.2	1,800
Accident Costs
Fatal accident related costs	5,000	1	5,000
Total Cost for a Fatal Accident			176,800

8 Summary

The key points that this note promotes are as follows:

· Accidents should be included within the economic appraisal. The exclusion of accident costs would lead to an under investment in safety at a national level and lead to difficulty in assessing the relative merits of projects that improve safety;

· Fatal, serious and slight casualty valuations should theoretically be based on the Willingness To Pay (WTP) approach. However, given the difficulties in deriving WTP values in developing countries the Gross Output approach is recommended as the default approach to casualty valuation. Should WTP values be used the results of the appraisal should be sensitivity tested to Gross Output values (within the risk analysis);

· Direct accident costs should be based on actual costs incurred or inferred from analysis of markets in the country being studied;

· Casualty valuations are the same for all modes and should also be equivalent to those used in other World Bank sectors (e.g. a World Bank health project). Direct accident costs (e.g. damage to property and vehicles) will vary by mode; and

· The accident prediction model requires good data, the collection of which can be a large undertaking. Error in this predictive model should be incorporated within the risk analysis.

· Default accident rates cannot be imported from a different country without a strong supporting evidence.

The documentation that supports the economic appraisal should clearly set out the approach adopted to each of the above points.