Regulation of Road Accident Externalities when Insurance Companies have Market Power
AbstractAccident externalities are among the most important external costs of road transport. We study the regulation of these when insurance companies have market power. Using analytical models, we compare a public-welfare maximizing monopoly with a private profit-maximizing monopoly, and markets where two or more firms compete. A central mechanism in the analysis is the accident externality that individual drivers impose on one another via their presence on the road. Insurance companies will internalize some of these externalities, depending on their degree of market power. We derive optimal insurance premiums, and "manipulable" taxes that take into account the response of the firm to the tax rule applied by the government. Furthermore, we study the taxation of road users under different assumptions on the market structure. We illustrate our analytical results with numerical examples, in order to better understand the determinants of the relative performance of different market structures.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 13-019/VIII.
Date of creation: 18 Jan 2013
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accident externalities; traffic regulation; safety; second-best; market power;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - 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
- R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-26 (All new papers)
- NEP-COM-2013-01-26 (Industrial Competition)
- NEP-IAS-2013-01-26 (Insurance Economics)
- NEP-IND-2013-01-26 (Industrial Organization)
- NEP-NET-2013-01-26 (Network Economics)
- NEP-REG-2013-01-26 (Regulation)
- NEP-TRE-2013-01-26 (Transport Economics)
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