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The economics of road safety

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  • Boyer, Marcel
  • Dionne, Georges

Abstract

In this paper we present a theoretical framework for the analysis of road safety in different contexts characterized by the following factors: the presence or the absence of externalities, moral hazard, taxes (subsidies), government regulation, liability insurance and multi-period insurance contracts. The main results are the following: (i) A Pareto optimal solution for insurance coverage and road safety is characterized by full insurance and a level of prevention which takes into account externalities between drivers. (ii) Without asymmetrical information, such a Pareto optimal solution can be obtained with or without a fault system for negligence if an adequate rating system is set up in order to induce individuals to take into account externalities. Taxes and subsidies can also be efficient. Government regulation of road safety is another way to reduce inefficies due to externalities. However, these interventions will not generally lead to a socially optimal level of road safety under asymmetrical information. (iii) Under asymmetrical information, two mechanisms are examined in some detail: fault for negligence and multi-period insurance contracts. It is shown that one-period liability insurance contracts (assuming that the legal system can observe the individual's level of road safety activities when accidents occur) or multi-period no-fault insurance contracts (assuming an infinite horizon with no discounting) based in part on the individual's past driving record can give individually rational self-protection activity levels which are socially efficient in presence of both moral hazard and externalities. Under less stringent assumptions, these contracts can give second-best solutions.

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Bibliographic Info

Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

Volume (Year): 21 (1987)
Issue (Month): 5 (October)
Pages: 413-431

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Handle: RePEc:eee:transb:v:21:y:1987:i:5:p:413-431

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Cited by:
  1. Gaudry, Marc & de Lapparent, Matthieu, 2013. "Part 2. Beyond single-outcome models: Decompositions of aggregate and disaggregate road safety risk," Research in Transportation Economics, Elsevier, vol. 37(1), pages 20-37.
  2. Maria Dementyeva & Paul R. Koster & Erik T. Verhoef, 2013. "Regulation of Road Accident Externalities when Insurance Companies have Market Power," Tinbergen Institute Discussion Papers 13-019/VIII, Tinbergen Institute.
  3. Richard Arnott, 2001. "The Economic Theory of Urban Traffic Congestion: A Microscopic Research Agenda," Boston College Working Papers in Economics 502, Boston College Department of Economics.
  4. Grimm, M. & Treibich, C., 2012. "Determinants of road traffic crash fatalities across Indian States," ISS Working Papers - General Series 531, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  5. Jean Pinquet & Georges Dionne & Charles Vanasse & Mathieu Maurice, 2007. "Point-record incentives, asymmetric information and dynamic data," Working Papers hal-00243056, HAL.
  6. Georges Dionnne & Pierre-Carl Michaud & Jean Pinquet, 2012. "A Review of Recent Theoretical and Empirical Analyses of Asymmetric Information in Road Safety and Automobile Insurance," Cahiers de recherche 1204, CIRPEE.
  7. Small, Kenneth A., 1997. "Economics and Urban Transportation Policy in the United States," University of California Transportation Center, Working Papers qt7mz1326k, University of California Transportation Center.
  8. Bourgeon, Jean-Marc & Picard, Pierre, 2007. "Point-record driving licence and road safety: An economic approach," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 235-258, February.
  9. Georges Dionne & Claude Fluet & Denise Desjardins, 2006. "Perception of the Risks Associated with Impaired Driving and Effects on Driving Behavior," Cahiers de recherche 0608, CIRPEE.
  10. Maria Dementyeva & Paul R. Koster & Erik T. Verhoef, 2013. "Regulation of Road Accident Externalities when Insurance Companies have Market Power," Tinbergen Institute Discussion Papers 13-019/VIII, Tinbergen Institute.
  11. Luis Rizzi, 2008. "Integrating Travel Delays, Road Safety, Care, Vehicle Insurance and Cost-Benefit Analysis of Road Capacity Expansion in a Unified Framework," Networks and Spatial Economics, Springer, vol. 8(2), pages 125-140, September.
  12. Pål Andreas Pedersen, 2001. "A Game Theoretical Approach to Road Safety," Studies in Economics 0105, Department of Economics, University of Kent.
  13. Dionne, G. & Laberge-Nadeau, C. & Maag, U. & Desjardins, D. & Messier, S., 1997. "Analyse de l'effet des regles d'obtention d'un permis de conduire au Quebec (1991) sur la securite routiere," Ecole des Hautes Etudes Commerciales de Montreal- 97-02, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
  14. Atwood, Joseph A. & Robinson-Cox, Jim & Shaik, Saleem, 2004. "A Statistical Examination Of Yield Switching Fraud In The Federal Crop Insurance Program," 2004 Annual meeting, August 1-4, Denver, CO 19983, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  15. Richard Arnott, 1994. "Alleviating Traffic Congestion: Alternatives to Road Pricing," Boston College Working Papers in Economics 282., Boston College Department of Economics.
  16. Georges Dionne & Claude Fluet & Denise Desjardins, 2007. "Predicted risk perception and risk-taking behavior: The case of impaired driving," Journal of Risk and Uncertainty, Springer, vol. 35(3), pages 237-264, December.

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