The effectiveness of the road traffic liability system in China? A law and economics perspective

This article analyses the effectiveness of the Chinese road traffic liability system in terms of both deterrence and compensation. We utilize the neo-classical economic model of accidents to assess the key features of the system, such as the basis of liability, the level of the benefits, the impacts of liability insurance and regulation, as well as the capacity of risk-spreading. The analysis shows that the road traffic liability system in China can only achieve partial deterrence. Under-compensation and insufficient risk-spreading seem to be serious problems, at least in the economically underdeveloped regions. Therefore, we propose several legislative changes that the policymaker could implement to improve the system.