Is Pay-As-You-Drive Insurance a Better Way to Reduce Gasoline than Gasoline Taxes?
Gasoline taxes are widely perceived as the most efficient instrument for reducing gasoline consumption because they exploit all behavioral responses for reducing fuel use, including reduced driving and improved fuel economy. At present, however, higher fuel taxes are viewed as a political nonstarter. Pay-as-you-drive (PAYD) auto insurance, which involves replacing existing lump-sum premiums with premiums that vary in proportion to miles driven, should be more practical, since they do not raise driving costs for the average motorist. We show that when impacts on a broad range of motor vehicle externalities are considered, PAYD also induces significantly higher welfare gains than comparable gasoline tax increases, for fuel reductions below 9%. The reason is that under PAYD, all of the reduction in fuel use, rather than just a fraction, comes from reduced driving; this produces a substantial additional efficiency gain because mileage-related external costs (especially congestion and accidents) are relatively large in magnitude.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shirley, Chad & Winston, Clifford, 2004. "Firm inventory behavior and the returns from highway infrastructure investments," Journal of Urban Economics, Elsevier, vol. 55(2), pages 398-415, March.
- Aaron S. Edlin, 2003.
"Per-Mile Premiums for Auto Insurance,"
Law and Economics
- Aaron S. Edlin, 1999. "Per-Mile Premiums for Auto Insurance," Law and Economics 9902002, EconWPA.
- Aaron S. Edlin., 1999. "Per-Mile Premiums for Auto Insurance," Economics Working Papers 99-262, University of California at Berkeley.
- Aaron S. Edlin, 1999. "Per-Mile Premiums for Auto Insurance," NBER Working Papers 6934, National Bureau of Economic Research, Inc.
- Parry, Ian & Fischer, Carolyn & Harrington, Winston, 2004. "Should Corporate Average Fuel Economy (CAFE) Standards Be Tightened?," Discussion Papers dp-04-53, Resources For the Future.
- Ian W. H. Parry & Kenneth A. Small, 2005.
"Does Britain or the United States Have the Right Gasoline Tax?,"
American Economic Review,
American Economic Association, vol. 95(4), pages 1276-1289, September.
- Parry, Ian & Small, Kenneth, 2002. "Does Britain or the United States Have the Right Gasoline Tax?," Discussion Papers dp-02-12-, Resources For the Future.
- Greene, David L., 1991. "A note on OPEC market power and oil prices," Energy Economics, Elsevier, vol. 13(2), pages 123-129, April.
- Parry, Ian, 2003.
"Comparing Alternative Policies to Reduce Traffic Accidents,"
dp-03-07, Resources For the Future.
- Parry, Ian W. H., 2004. "Comparing alternative policies to reduce traffic accidents," Journal of Urban Economics, Elsevier, vol. 56(2), pages 346-368, September.
- Aaron S. Edlin & Pinar Karaca-Mandic, 2006.
"The Accident Externality from Driving,"
Journal of Political Economy,
University of Chicago Press, vol. 114(5), pages 931-955, October.
When requesting a correction, please mention this item's handle: RePEc:rff:dpaper:dp-05-15. 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: (Webmaster)
If references are entirely missing, you can add them using this form.