Regulation of Road Accident Externalities when Insurance Companies have Market Power

Maria Dementyeva, Paul Koster and Erik Verhoef
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Maria Dementyeva: VU University Amsterdam
Authors registered in the RePEc Author Service: Дементьева Мария

No 13-019/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper resulted in a publication in the 'Journal of Urban Economics' , 2015, 86, 1-8.

Accident externalities are among the most important external costs of road transport. We study the regulation of these when insurance companies have market power. Using analytical models, we compare a public-welfare maximizing monopoly with a private profit-maximizing monopoly, and markets where two or more firms compete. A central mechanism in the analysis is the accident externality that individual drivers impose on one another via their presence on the road. Insurance companies will internalize some of these externalities, depending on their degree of market power. We derive optimal insurance premiums, and "manipulable" taxes that take into account the response of the firm to the tax rule applied by the government. Furthermore, we study the taxation of road users under different assumptions on the market structure. We illustrate our analytical results with numerical examples, in order to better understand the determinants of the relative performance of different market structures.

Keywords: accident externalities; traffic regulation; safety; second-best; market power (search for similar items in EconPapers)
JEL-codes: D43 D62 R41 R48 (search for similar items in EconPapers)
Date: 2013-01-18
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Regulation of road accident externalities when insurance companies have market power (2015)
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