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Pay-at-the-Pump Auto Insurance

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  • Khazzoom, J. Daniel
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    Abstract

    PAY-AT-THE-PUMP is a proposal to replace the current insurance system of lump sum payments for automobile insurance by a mechanism whereby motorists pay for their insurance as they buy fuel for their vehicles. PAY-AT-THE-PUMP has several advantages. It reduces insurance cost and cross subsidies and enhances equity. It also benefits the environment, safety, balance of payments, and security. In this paper we study limited but very important issues in the theory and implementation of PAY-AT-THE-PUMP insurance. We address issues of efficiency, subsidy, equity, externalities, safety, insurance cost and cost of insuring the uninsured motorist under a PAY-AT-THE-PUMP regime. We use the insurance industry’s criticisms of mandatory auto insurance as a lens through which we view PAY-AT-THE-PUMP insurance and ask how PAY-AT-THE-PUMP fares by comparison. Finally we address one aspect of insurance that has been neglected in the current debate -- the human dimension of the problem of uninsured motorist and the contribution PAY-AT-THE-PUMP can make to solve this problem.

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    File URL: http://www.rff.org/RFF/documents/RFF-DP-98-13-REV.pdf
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    Bibliographic Info

    Paper provided by Resources For the Future in its series Discussion Papers with number dp-98-13-rev.

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    Date of creation: 01 Aug 1999
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    Handle: RePEc:rff:dpaper:dp-98-13-rev

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    1. J. Daniel Khazzoom, 1997. "Impact of Pay-at-the-Pump on Safety Through Enhanced Vehicle Fuel Efficiency," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 103-133.
    2. Eric Smith & Randall Wright, 1991. "Why is automobile insurance in Philadelphia so damn expensive?," Staff Report 139, Federal Reserve Bank of Minneapolis.
    3. Carol A. Dahl, 1986. "Gasoline Demand Survey," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 67-82.
    4. J. David Cummins & Sharon Tennyson, 1992. "Controlling Automobile Insurance Costs," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 95-115, Spring.
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    Cited by:
    1. Khazzoom, J. Daniel, 1999. "Pay-at-the-Pump (PATP) Auto Insurance: Criticisms and Proposed Modifications," Discussion Papers dp-99-14-rev, Resources For the Future.

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