Citation

Greenberg A. Transp. Res. D Trans. Environ. 2009; 14(6): 437-445.

Copyright

(Copyright © 2009, Elsevier Publishing)

DOI

10.1016/j.trd.2009.01.003

PMID

unavailable

Abstract

By converting fixed insurance costs to per-mile charges, pay-as-you-drive-and-you-save (PAYDAYS) insurance would encourage voluntary reductions in driving with concomitant decreases in congestion, air pollution, greenhouse gas emissions, crashes, and insurance claims. Public policies have at time been deployed to require or reward environmental performance in the sale of transportation-related products in the marketplace. For example, the US National Highway Traffic Safety Administration has issued both proposed and final fuel economy rules intended to maximize net benefits through the use of marginal cost-benefit analysis. This paper explores how an analogous benefit-maximizing rule could be structured to encourage adoption of PAYDAYS insurance. The key to designing such a benefit-maximizing rule is to: estimate the net benefits of every mile not driven; estimate the reduction in mileage that would result from PAYDAYS insurance; and, apply these estimates to the calculation of net benefits of every PAYDAYS-insured mile. A mechanism by which the industry itself funds the incentive payments is described, as are alternatives.