Miles, Speed and Technology: Traffic Safety under Oligopolistic Insurance

Maria Dementyeva and Erik Verhoef
Additional contact information
Maria Dementyeva: VU University Amsterdam, the Netherlands
Authors registered in the RePEc Author Service: Дементьева Мария

No 15-025/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper studies road safety and accident externalities when insurance companies have market power, and can influence road users' driving behaviour via insurance premiums. We obtain both welfare and profit maximizing marginal conditions for first- and second-best insurance premiums for monopoly and oligopoly market structures in insurance. The insurance program consists of an insurance premium, and marginal dependencies ("slopes") of that premium on speed and on the own safety technology choice. While a private monopolist internalizes accident externalities up to the point where compensations to users' benefit matches the full (immaterial) costs, in oligopolistic markets insurance firms do not fully internalize accident externalities that their customers impose upon one another. Therefore, non-optimal premiums as well as speed and technology control apply. Analytical results demonstrate how insurance firms' incentives to influence traffic safety deviate from socially optimal incentives.

Keywords: Accident externalities; congestion externalities; traffic regulations; road safety; second-best; market power (search for similar items in EconPapers)
JEL-codes: D43 D62 R41 R42 R48 (search for similar items in EconPapers)
Date: 2015-02-16, Revised 2016-03-08
New Economics Papers: this item is included in nep-com, nep-cta, nep-ias, nep-reg and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Miles, speed, and technology: Traffic safety under oligopolistic insurance (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20150025

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