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Point-record incentives, asymmetric information and dynamic data

Author

Listed:
  • Jean Pinquet

    (CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

  • Georges Dionne

    (HEC Montréal - HEC Montréal)

  • Charles Vanasse

    (TD Asset Management)

  • Mathieu Maurice

    (HEC Montréal - HEC Montréal)

Abstract

Road safety policies often use incentive mechanisms based on traffic violations to promote safe driving. These mechanisms are both monetary (fines, insurance premiums) and non-monetary (point-record driving licenses). We use Quebec data collected between 1983 and 1996 to analyze the efficiency of these mechanisms in reducing the effects of asymmetric information. We derive the theoretical properties of the incentive mechanisms with respect to contract time and accumulated demerit points. These properties are then tested empirically. We compare the overall efficiency of the different incentive schemes and try to link global results with the theoretical properties of the relation between safe driving effort and traffic violation risk. We do not reject the presence of moral hazard in the data. Moreover, the experience rating premium introduced in 1992 did reduce the frequency of traffic violations by 15%.

Suggested Citation

  • Jean Pinquet & Georges Dionne & Charles Vanasse & Mathieu Maurice, 2007. "Point-record incentives, asymmetric information and dynamic data," Working Papers hal-00243056, HAL.
  • Handle: RePEc:hal:wpaper:hal-00243056
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00243056
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    File URL: https://hal.archives-ouvertes.fr/hal-00243056/document
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    References listed on IDEAS

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    1. Boyer, Marcel & Dionne, Georges, 1987. "The economics of road safety," Transportation Research Part B: Methodological, Elsevier, vol. 21(5), pages 413-431, October.
    2. Dionne, Georges & Vanasse, Charles, 1989. "A Generalization of Automobile Insurance Rating Models: The Negative Binomial Distribution with a Regression Component," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 19(02), pages 199-212, November.
    3. Puelz, Robert & Snow, Arthur, 1994. "Evidence on Adverse Selection: Equilibrium Signaling and Cross-Subsidization in the Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 236-257, April.
    4. Shavell, Steven, 1987. "The Optimal Use of Nonmonetary Sanctions as a Deterrent," American Economic Review, American Economic Association, vol. 77(4), pages 584-592, September.
    5. John D. Graham & Steven Garber, 1984. "Evaluating the effects of automobile safety regulation," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 3(2), pages 206-224.
    6. Chiappori, Pierre-Andre & Macho, Ines & Rey, Patrick & Salanie, Bernard, 1994. "Repeated moral hazard: The role of memory, commitment, and the access to credit markets," European Economic Review, Elsevier, vol. 38(8), pages 1527-1553, October.
    7. Bourgeon, Jean-Marc & Picard, Pierre, 2007. "Point-record driving licence and road safety: An economic approach," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 235-258, February.
    8. 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.
    9. Georges Dionne & Pierre Lasserre, 1985. "Adverse Selection, Repeated Insurance Contracts and Announcement Strategy," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 719-723.
    10. Dionne, Georges & St-Michel, Pierre, 1991. "Workers' Compensation and Moral Hazard," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 236-244, May.
    11. Pierre-Andre Chiappori & Bernard Salanie, 2000. "Testing for Asymmetric Information in Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 56-78, February.
    12. Jaap H. Abbring & Pierre-André Chiappori & Jean Pinquet, 2003. "Moral Hazard and Dynamic Insurance Data," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 767-820, June.
    13. Jaap H. Abbring & Pierre-André Chiappori & Jean Pinquet, 2003. "Moral Hazard and Dynamic Insurance Data," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 767-820, June.
    14. 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 128-134, February.
    15. Sloan, Frank A & Reilly, Bridget A & Schenzler, Christoph, 1995. "Effects of Tort Liability and Insurance on Heavy Drinking and Drinking and Driving," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 49-77, April.
    16. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
    17. Alma Cohen, 2005. "Asymmetric Information and Learning: Evidence from the Automobile Insurance Market," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 197-207, May.
    18. Peltzman, Sam, 1975. "The Effects of Automobile Safety Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 677-725, August.
    19. Dionne, G. & Maurice, M. & Pinquet, J. & Vanasse, C., 2001. "The Role of Memory in Long-Term Contracting with Moral Hazard: Empirical Evidence in Automobile Insurance," Ecole des Hautes Etudes Commerciales de Montreal- 01-05, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
    20. Steven Shavell, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 541-562.
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    Citations

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    Cited by:

    1. Georges Dionne & Benoit Dostie, 2007. "Estimating the effect of a change in insurance pricing regime on accidents with endogenous mobility," Cahiers de recherche 07-11, HEC Montréal, Institut d'économie appliquée.
    2. Georges Dionne & Claude Fluet & Denise Desjardins, 2007. "Predicted risk perception and risk-taking behavior: The case of impaired driving," Journal of Risk and Uncertainty, Springer, vol. 35(3), pages 237-264, December.

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