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Regulation of Road Accident Externalities when Insurance Companies have Market Power

Author

Listed:
  • Maria Dementyeva

    (VU University Amsterdam)

  • Paul R. Koster

    (VU University Amsterdam)

  • Erik T. Verhoef

    (VU University Amsterdam)

Abstract

This discussion paper resulted in a publication in the 'Journal of Urban Economics' , 2015, 86, 1-8. Accident 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.

Suggested Citation

  • 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.
    • Handle: RePEc:tin:wpaper:20130019
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    References listed on IDEAS

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    5. Dementyeva, Maria & Koster, Paul R. & Verhoef, Erik T., 2015. "Regulation of road accident externalities when insurance companies have market power," Journal of Urban Economics, Elsevier, vol. 86(C), pages 1-8.
    6. Brueckner, Jan K. & Verhoef, Erik T., 2010. "Manipulable congestion tolls," Journal of Urban Economics, Elsevier, vol. 67(3), pages 315-321, May.
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    Cited by:

    1. Marco Percoco, 2016. "The impact of road pricing on accidents: a note on Milan," Letters in Spatial and Resource Sciences, Springer, vol. 9(3), pages 343-352, October.
    2. 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.
    3. Claudia N. Berg & Uwe Deichmann & Yishen Liu & Harris Selod, 2017. "Transport Policies and Development," Journal of Development Studies, Taylor & Francis Journals, vol. 53(4), pages 465-480, April.
    4. Dementyeva, Maria & Koster, Paul R. & Verhoef, Erik T., 2015. "Regulation of road accident externalities when insurance companies have market power," Journal of Urban Economics, Elsevier, vol. 86(C), pages 1-8.

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    More about this item

    Keywords

    accident externalities; traffic regulation; safety; second-best; market power;
    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
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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