Ian Savage (2011). A structural model of safety and safety regulation in the truckload trucking industry. Transportation Research E: The Logistics and Transportation Review 47(2):249-262.
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This paper presents a structural model in which trucking safety is determined in conjunction with prices and output. The structural model describes how trucking firms choose their level of safety by balancing the cost of preventing crashes against the financial consequences of a crash. This choice occurs within an interregional trade model that sets the market prices and quantities for the commodities that are transported between geographically dispersed markets.

This model can be used to reveal the mechanisms and the full effects of two common market failures. The first is the myopic decisions by some trucking managers to ignore the increased probability of crashes that may result from cost savings in driver training and vehicle maintenance. The second is a more general problem that some of the external costs of truck crashes (such as congestion at the crash site) cannot be legally recovered from trucking firms.

The model predicts that differences in prevention costs and the consequences of accidents lead to levels of safety that vary in predicable ways across commodities. In addition the magnitude of the possible crash externalities associated with a commodity determines the market opportunities for myopic carriers. Other things being equal, commodities with the highest levels of externalities have the greatest potential for myopic behavior. That said, the model predicts that non-myopic carriers of commodities with the greatest externalities tend to have the highest level of safety. Commodities that have negligible crash externalities tend to be transported at relatively lower levels of safety; even by carriers who are not myopic.

This paper contrasts two public policy responses to protect other road users, and those who live along the highway, from these market failures. These are (1) a post-crash fine and secondary liability on the shipper and (2) a minimum safety standard. The former removes all of the market failure, and would seem to do so in a low-cost and practical manner. The latter policy is more complex. In contrast to the traditional literature, where different countermeasures are sometimes deployed as substitutes or sometimes as complements, our model finds that the truck safety market needs the minimum safety standard to be deployed in conjunction with a requirement for carriers to hold third-party insurance, and the imposition of penalties for non-compliance.

The large enforcement cost of the latter policy suggests that this would not be the preferred policy from the point of view of a social planner. However, in reality the political process seems to have favored the minimum standard. The structural model, that exposes who gains and who loses from policy interventions, provides the necessary insights into the overwhelming political constituencies that combine to make the minimum standard the favored public policy, and seek to keep the minimum standard as low as possible.