Advanced Search
MyIDEAS: Login to save this paper or follow this series

Per-Mile Premiums for Auto Insurance

Contents:

Author Info

  • Aaron S. Edlin

    (University of California, Berkeley)

Abstract

Most insurance premiums are only weakly linked to mileage, and have largely lump-sum characteristics. The probable result is too many accidents and too much driving from the standpoint of economic efficiency. This paper develops a model of the relationship between driving and accidents that formalizes Vickrey's [1968] central insights about the accident externalities of driving. We use it to estimate the driving, accident, and congestion reductions that could be expected from switching to other insurance pricing systems. Under a competitive system of per-mile premiums, in which insurance companies quote risk-classified per-mile rates, we estimate that the reduction in insured accident costs net of lost driving benefits would be $9.8 -$12.7 billion in the U.S., or $58-$75 per insured vehicle. When congestion reductions are considered, the net benefits rise to $15-$18 billion, exclusive of monitoring costs. The total benefits of per-mile premiums with a Pigouvian tax to account for accident externalities would be $19-$25 billion, or $111-$146 per insured vehicle, exclusive of monitoring costs. Accident externalities may go a long way toward explaining why most insurance companies have not switched to per-mile premiums despite these large potential social benefits.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://128.118.178.162/eps/le/papers/0303/0303001.pdf
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series Law and Economics with number 0303001.

as in new window
Length: 51 pages
Date of creation: 19 Mar 2003
Date of revision:
Handle: RePEc:wpa:wuwple:0303001

Note: 51 pages, Acrobat .pdf
Contact details of provider:
Web page: http://128.118.178.162

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Are Economists Good at Business?
    by Matthew E. Kahn in Environmental and Urban Economics on 2010-07-08 02:05:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. repec:reg:wpaper:412 is not listed on IDEAS
  2. Alma Cohen & Peter Siegelman, 2009. "Testing for Adverse Selection in Insurance Markets," NBER Working Papers 15586, National Bureau of Economic Research, Inc.
  3. Parry, Ian, 2003. "Comparing Alternative Policies to Reduce Traffic Accidents," Discussion Papers dp-03-07, Resources For the Future.
  4. Daniel P. Kessler & Daniel L. Rubinfeld, 2004. "Empirical Study of the Civil Justice System," NBER Working Papers 10825, National Bureau of Economic Research, Inc.
  5. Elizabeth Kopits & Maureen Cropper, 2008. "Why Have Traffic Fatalities Declined in Industrialised Countries?: Implications for Pedestrians and Vehicle Occupants," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 42(1), pages 129-154, January.
  6. Edlin, Aaron S. & Karaca-Mandic, Pinar, 2007. "The Accident Externality from Driving," Berkeley Olin Program in Law & Economics, Working Paper Series qt6179d3nw, Berkeley Olin Program in Law & Economics.
  7. Ian W. H. Parry, 2005. "Is Pay-as-You-Drive Insurance a Better Way to Reduce Gasoline than Gasoline Taxes?," American Economic Review, American Economic Association, vol. 95(2), pages 288-293, May.
  8. Laszlo Goerke, 2003. "Road Traffic and Efficient Fines," European Journal of Law and Economics, Springer, vol. 15(1), pages 65-84, January.
  9. Cohen, Alma & Dehejia, Rajeev, 2004. "The Effect of Automobile Insurance and Accident Liability Laws on Traffic Fatalities," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 357-93, October.
  10. Delucchi, Mark A. & McCubbin, Donald R., 2010. "External Costs of Transport in the U.S," Institute of Transportation Studies, Working Paper Series qt13n8v8gq, Institute of Transportation Studies, UC Davis.
  11. Shanjun Li, 2012. "Traffic safety and vehicle choice: quantifying the effects of the ‘arms race’ on American roads," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(1), pages 34-62, 01.
  12. Edlin, Aaron S. & Karaca-Mandic, Pinar, 2005. "The Accident Externality from Driving," Department of Economics, Working Paper Series qt2h23t6rt, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  13. repec:reg:wpaper:139 is not listed on IDEAS
  14. repec:reg:wpaper:223 is not listed on IDEAS
  15. Edlin, Aaron S. & Karaca-Mandic, Pinar, 2005. "The Accident Externality from Driving," Department of Economics, Working Paper Series qt0hw1m6q2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  16. Steimetz, Seiji S.C., 2008. "Defensive driving and the external costs of accidents and travel delays," Transportation Research Part B: Methodological, Elsevier, vol. 42(9), pages 703-724, November.
  17. repec:reg:wpaper:289 is not listed on IDEAS
  18. Santos, Georgina & Behrendt, Hannah & Maconi, Laura & Shirvani, Tara & Teytelboym, Alexander, 2010. "Part I: Externalities and economic policies in road transport," Research in Transportation Economics, Elsevier, vol. 28(1), pages 2-45.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwple:0303001. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.