A REEXAMINATION OF RESOURCE ALLOCATION RESPONSES TO THE 65‐MPH SPEED LIMIT

Michael Greenstone (*) I. INTRODUCTION In 1987 the federal government allowed states to raise speed limits from 55 mph to 65 mph on a single category of roads, rural interstates. Of the 47 states with rural interstate roads, 40 adopted the higher speed limit within a year. Garber and Graham (1990) and Ashenfelter and Greenstone (2002) document that the fatality rate on rural interstates increased dramatically subsequent to its introduction. These studies conclude that higher speed limits lead to higher fatality rates. In a recent issue of Economic Inquiry, Lave and Elias (1997) (henceforth L&E) argue that the full effect of the 65-mph speed limit cannot be inferred by examining rural interstates in isolation from other roads. They conjecture that the higher speed limits caused reallocations of drivers and state police that counterbalanced the increased fatality rates on rural interstates. In particular, they posit that the reduced travel times available on rural interstates induced drivers to switch from dangerous side roads to the safer rural interstates. Additionally, they contend that the higher limits freed the state police from speed enforcement, which allowed them to concentrate on activities with greater impacts on fatality rates. Thus, L&E's hypothesis is that the full effect of an increase in the speed limit requires an examination of statewide fatality rates. Figure 1 graphically depicts L&E's hypothesis. L&E present evidence in favor of their hypothesized causal chain. First, in support of the driver reallocation conjecture, they find that between 1986 and 1988 vehicle miles of travel (VMT) increased on rural interstates where the speed limit was increased to 65 mph. Second, they present anecdotal evidence in favor of the trooper reallocation conjecture. Third, they show that the introduction of the 65-mph limit was associated with a statistically significant decline in statewide fatality rates of 3.4%-5.1%. Thus, L&E's surprising conclusion is that through driver and trooper reallocations the 1987 increase in speed limits reduced fatality rates. This study reexamines L&E's empirical results and is unable to confirm them. It shows that the statewide fatality rate declined by a statistically insignificant amount in adopting states after 1987. This finding holds when the specification is virtually identical to the one that L&E fit and when alternative specifications are estimated. Although this result directly contradicts L&E's primary finding, the source of the discrepancy cannot be determined because their data were unavailable. It remains puzzling that the large increase in rural interstate fatality rates is not observable in statewide fatality rates. An explanation that potentially reconciles this finding with L&E's is that the increase on rural interstates was counterbalanced, but not swamped, by fatality declines induced by the hypothesized reallocations. Consequently, this article also explores whether the 65-mph speed limit caused the reallocations that are the conjectured sources of the statewide decline in fatality rates. If these links are not supported by the data, it indicates that the statistically insignificant decline in statewide fatality rates cannot be causally related to the two reallocations and, in turn, to the higher speed limit. The links between the 65-mph speed limit and the two reallocations are tested separately. First, the results suggest that VMT did not increase on rural interstates where the speed limit was raised. This finding is derived from a regression on 1982-1990 data, whereas L&E only compared unadjusted means from 1986 and 1988. Moreover, it holds when the comparison is to rural interstates in states that did not adopt the higher limit and to both other states and other categories of roads. These results fail to provide an empirical basis for the driver reallocation conjecture. …