Voluntary Internalization of Speeding Externalities

Publisher's full text
Sara Arvidsson
Lars Hultkrantz

High speed is an important determinant of accidents for speeders as well as for other motorists. This paper develops a framework for analyzing instruments that encourage drivers to internalize the full consequences of their behavior with respect to choice of speed using Pay-As-You-Speed (PAYS) insurance, possibly as an extension of Pay-As-You-Drive (PAYD) insurance. We demonstrate how the combination of a Pigovian taxation scheme and PAYS can be designed in a setting involving two principals (the state and an insurance company) that affect the incentives of commuters to choose between driving and other modes of transport and for those that use the car mode to drive carefully. While the government is assumed to maximize overall social efficiency and therefore wants to implement marginal cost pricing, insurance companies do actuarial pricing, i.e. average cost pricing within risk classes that are homogeneous to the degree that the insurers have information about actual behavior. PAYS insurance improves the insurance industry's possibility to differentiate premiums according to behavior and therefore to target risk classes in a better way than today. Moreover, since our framework is designed to accomplish differentiation by self-selection, compulsory regulation is not necessary, although there may be reason for the government to facilitate the implementation of the new technology.

LATEST NEWS


2017-11-30

Millions for research into maritime transport and the environment

Maritime transport is a major source of emissions of harmful air pollutants and carbon dioxide. In a new project, a research team from the Swedish National Road and Transport Research Institute (VTI) and the University of Gothenburg has received SEK 6.4...


2017-11-30

New research programme for more efficient travel

The Swedish National Road and Transport Research Institute (VTI) is playing an important role in a major new research programme to find radical solutions leading to fewer trips and more efficient travel, along with tools to enable better use of roads and...


2017-11-30

Simulator used to practice emergency responses safely

Emergency responses of the police, ambulance, and rescue services are associated with a high risk of accidents, but practicing them in real traffic is neither safe nor permissible. A simulator-based method developed by the Swedish National Road and Transport...


2017-10-26

Simulation of cut-in by manually driven vehicles in platooning scenarios

A study in a VTI-driving simulator has showed that a platoon will be able to handle a cut in from a manually driven car. The results of this study have recently been presented at two conferences in Japan.


2017-10-16

ERPUG Forum

The five-year anniversary of European Road Profile Users' Group (ERPUG) Forum will take place at Ramboll head quarter, Copenhagen, Denmark October 19-20, 2017.


2017-09-29

Self-driving buses in Sweden next year?

A self-driving, fossil-free bus. This idea might become reality through a forthcoming collaborative project involving the Swedish National Road and Transport Research Institute (VTI), Linköping University and several other participants. The project group aim...