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Incentive Mechanisms for Safe Driving: A Comparative Analysis with Dynamic Data

  • Jean Pinquet

    ()

    (Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS)

  • Georges Dionne

    (HEC Montréal - HEC MONTRÉAL)

  • Charles Vanasse

    (HEC Montréal - HEC MONTRÉAL)

  • Maurice Mathieu

    (HEC Montréal - HEC MONTRÉAL)

Road safety policies often use incentive mechanisms based on traffic violations to promote safe driving. Examples of mechanisms are fines, experience rating and point-record driving licenses. We analyse the effectiveness of these mechanisms in promoting safe driving. We derive their theoretical properties with respect to contract time and accumulated demerit points. These properties are tested empirically with data from the Quebec public insurance plan. We find evidence of moral hazard, which means that drivers who accumulate demerit points become more careful because they are at threat of losing their license. The insurance rating scheme introduced in 1992 reduced the frequency of traffic violations by 15%. We use this result to derive monetary equivalents for traffic violations and license suspensions.

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Paper provided by HAL in its series Post-Print with number hal-00567866.

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Date of creation: Feb 2011
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Publication status: Published in The Review of Economics and Statistics, 2011, 93 (1), pp.218-227
Handle: RePEc:hal:journl:hal-00567866
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00567866
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  1. Pierre-André Chiappori & Bernard Salanié, 1997. "Testing for Asymmetric Information in Insurance Markets," Working Papers 97-11, Centre de Recherche en Economie et Statistique.
  2. Georges Dionne & Christian Gourieroux & Charles Vanasse, 2001. "Testing for Evidence of Adverse Selection in the Automobile Insurance Market: A Comment," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 444-473, April.
  3. Jean Pinquet & Jaap Abbring & Pierre-André Chiappori, 2003. "Moral Hazard and Dynamic Insurance Data," Post-Print hal-00397121, HAL.
  4. Viscusi, W Kip, 1993. "The Value of Risks to Life and Health," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1912-46, December.
  5. Jean-Marc Bourgeon & Pierre Picard, 2007. "Point-record driving licence and road safety : an economic approach," Post-Print hal-00243024, HAL.
  6. Shavell, Steven, 1987. "The Optimal Use of Nonmonetary Sanctions as a Deterrent," American Economic Review, American Economic Association, vol. 77(4), pages 584-92, September.
  7. Jaap H. Abbring & Pierre-Andre Chiappori, 2004. "Moral Hazard and Dynamic Insurance Data," 2004 Meeting Papers 316, Society for Economic Dynamics.
  8. Joseph J. Doyle, 2005. "Health Insurance, Treatment and Outcomes: Using Auto Accidents as Health Shocks," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 256-270, May.
  9. Landes, Elisabeth M, 1982. "Insurance, Liability, and Accidents: A Theoretical and Empirical Investigation of the Effect of No-Fault Accidents," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 49-65, April.
  10. Boyer, Marcel & Dionne, Georges, 1989. "An Empirical Analysis of Moral Hazard and Experience Rating," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 128-34, February.
  11. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-77, June.
  12. Marie-Cécile Fagart & Claude Fluet, 2007. "Liability Insurance under the Negligence Rule," Cahiers de recherche 0730, CIRPEE.
  13. Joseph J. Doyle Jr., 2005. "Health Insurance, Treatment and Outcomes: Using Auto Accidents as Health Shocks," NBER Working Papers 11099, National Bureau of Economic Research, Inc.
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