RESOURCE ALLOCATION IN PUBLIC POLICY: THE EFFECTS OF THE 65‐MPH SPEED LIMIT

In 1987 the U.S. government allowed states to raise speed limits to 65‐mph on some highways. We evaluate the consequences using a resource allocation perspective: the chance to drive faster reallocates traffic from side roads to the safer interstate highways, and a higher speed limit permits highway patrols to shift manpower from speed enforcement to other safety activities. This perspective implies that we should measure the effect of a speed limit by its systemwide rather than its local effects. We do so and find that the fatality rate dropped by 3.49%‐5.1% following the speed limit increase. (JEL A10, R40)