Research

In 1987 the federal government permitted states to raise the speed limit on their rural interstate roads, but not on their urban interstate roads, from 55 mph to 65 mph. Since the states that adopted the higher speed limit must have valued the travel hours they saved more than the fatalities incurred, this institutional change provides an opportunity to estimate an upper bound on the public’s willingness to trade off wealth for a change in the probability of death. Our estimates indicate that the adoption of the 65‐mph limit increased speeds by approximately 4 percent, or 2.5 mph, and fatality rates by roughly 35 percent. Together, the estimates suggest that about 125,000 hours were saved per lost life. When the time saved is valued at the average hourly wage, the estimates imply that adopting states were willing to accept risks that resulted in a savings of $1.54 million (1997 dollars) per fatality, with a sampling error roughly one‐third this value. We set out a simple model of states’ decisions to adopt the 65‐mph limit that turns on whether their savings exceed their value of a statistical life. The empirical implementation of this model supports the claim that $1.54 million is an upper bound, but it provides imprecise estimates of the value of a statistical life.

In a recent issue of Economic Inquiry (35[3]: 614–20) Lave and Elias (1997) contend that the 1987 increase in speed limits to 65 mph on rural interstate roads caused a reduction in statewide fatality rates. They argue that increased fatality rates on rural interstates were counterbalanced by declines on other roads due to compensatory reallocations of drivers and state police. This article is unable to find any empirical evidence of these reallocations. This removes the empirical basis for their hypothesis and implies that the effect of the 65-mph speed limit can be inferred from an analysis of rural interstates only. On these roads, fatality rates increased dramatically.