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Point-record incentives, asymmetric information and dynamic data

Jean Pinquet (), Georges Dionne, Charles Vanasse and Mathieu Maurice
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Charles Vanasse: TD Asset Management
Mathieu Maurice: HEC Montréal - HEC Montréal

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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%.

Date: 2007
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Handle: RePEc:hal:wpaper:hal-00243056