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Miles, speed, and technology: Traffic safety under oligopolistic insurance

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  • Dementyeva, Maria
  • Verhoef, Erik T.

Abstract

We study road safety when insurance companies have market power, and can influence drivers’ behavior via insurance premiums. We obtain first- and second-best premiums for different insurance market structures. The insurance program consists of an insurance premium, and marginal dependencies of that premium on speed and own safety technology choice of drivers. A private monopolist internalizes collision externalities up to the point where compensations to users’ benefit matches the full (intangible) costs; in oligopolistic markets, insurers do not fully internalize collision externalities. Analytical results demonstrate how insurance firms’ incentives to influence traffic safety coincide with or deviate from socially optimal incentives. Our results may be useful for design of pay-as-you-speed and alike insurances as well as policies related to driving safety.

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  • Dementyeva, Maria & Verhoef, Erik T., 2016. "Miles, speed, and technology: Traffic safety under oligopolistic insurance," Transportation Research Part B: Methodological, Elsevier, vol. 86(C), pages 147-162.
    • Handle: RePEc:eee:transb:v:86:y:2016:i:c:p:147-162
    DOI: 10.1016/j.trb.2016.01.018
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    Cited by:

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    2. Tscharaktschiew, Stefan, 2020. "Why are highway speed limits really justified? An equilibrium speed choice analysis," Transportation Research Part B: Methodological, Elsevier, vol. 138(C), pages 317-351.

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    More about this item

    Keywords

    Road safety; Collision externality; Traffic regulation; Second-best; Car accident;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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