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Pay-at-the-Pump (PATP) Auto Insurance: Criticisms and Proposed Modifications

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  • Khazzoom, J. Daniel

Abstract

In 1998 the U.S. Environmental Protection Agency sponsored an effort to examine the criticisms and concerns expressed about Pay-at-the-Pump (PATP) auto insurance and explore the reformulation of PATP, taking into account these concerns. This paper provides a brief exposition of PATP and its main advantages followed by a review of its criticisms and concerns. We outline a reconstituted PATP proposal emerging from the review of these criticisms: a hybrid system that merges the best features from PATP and the existing insurance system. It retains what is consistent with the free market operation and market incentive in the existing system. At the same time it restores the price signal, the sine qua non for economic efficiency, where it has been extinguished in the existing insurance system. The reconstituted proposal capitalizes on the pricing efficiency feature that characterizes PATP, which in turn leads to a reduction in insurance cost, enhanced safety, elimination of resource misallocation, enhanced equity and reduction (possibly elimination) of accident-cost externalities. In addition, it benefits society at large with improved environment, improved balance of payments, enhanced U.S. security, and a redress to the human dimension of the uninsured motorist problem.

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  • Khazzoom, J. Daniel, 1999. "Pay-at-the-Pump (PATP) Auto Insurance: Criticisms and Proposed Modifications," RFF Working Paper Series dp-99-14-rev, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-99-14-rev
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-99-14-REV.pdf
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    References listed on IDEAS

    as
    1. J. Daniel Khazzoom, 1997. "Impact of Pay-at-the-Pump on Safety Through Enhanced Vehicle Fuel Efficiency," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 103-133.
    2. Khazzoom, J. Daniel, 1999. "Pay-at-the-Pump Auto Insurance," RFF Working Paper Series dp-98-13-rev, Resources for the Future.
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