Dubner and Levitt have written a column for the Times Magazine‘s inaugural “green” issue of Sun., April 20. The subject: how auto travel produces a variety of negative externalities — pollution, carbon emissions, congestion, accidents — and how one new strategy may be able to help: pay-as-you-drive (P.A.Y.D.) auto insurance.
The strange truth is that most auto insurance in the U.S. is bought on an all-you-can-eat basis, which means it’s costless to drive additional miles, at least from an insurance perspective. But P.A.Y.D. insurance would change that.
Here is some of the research that went into the column:
1. Various writings by the economist Aaron Edlin on P.A.Y.D. insurance, including:
- A 2006 paper from the Journal of Political Economy, co-authored by Pinar Karaca-Mandic, on the accident externality from driving.
- “Per-Mile Premiums for Auto Insurance,” a chapter from the 2003 book Economics for an Imperfect World: Essays in Honor of Joseph E. Stiglitz.
- A 2006 article from the Economists’ Voice called “If Voters Won’t Go for Taxing Oil to Conserve Energy, How Do We Do It?”
2. A draft paper on P.A.Y.D. insurance by Jason E. Bordoff and Pascal J. Noel of the Hamilton Project at the Brookings Institution, and an op-ed-style summary of the paper, written by Bordoff for the journal Democracy.
Also worth reading: a discussion of the Democracy piece from the Marginal Revolution blog.
3. U.S. auto statistics on accidents, miles driven, etc., from the Bureau of Transportation Statistics and the Fatality Analysis Reporting System, and a report on congestion costs from the Texas Transportation Institute.
4. An earlier blog post by Levitt, “Hurray for High Gas Prices!” that touched on the issue of mis-priced auto externalities.
5. Here’s the company that is about to roll out P.A.Y.D. insurance on a large scale.
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The P.A.Y.D Insurance sounds interesting, I am going to check out all these links. I have never heard of this before so thanks for writing about it.
Rachel
http://bakedblog.com
Last year, Progressive offered me a 5% discount if I would report my odometer readings to them. I took them up on it, gave them my initial reading, and since then they’ve only asked one more time, about six weeks before renewing our policy.
As I usually bicycle to work three to four days a week year-round, mileage on my car is pretty low. And they rewarded us with slightly lower rates for the next year.
I’d love to see insurance paid for at the gas pump myself, as a per gallon charge. Then everyone would have insurance, and perhaps America will realize they don’t need a Hummer to drive to work by themselves.
Wouldn’t driving less result in less *experience* driving, and thus higher probability of an accident?
The good drivers that I know all drive much more frequently than the bad ones (although if that’s a cause of an effect I’m not sure..)
There are some really big advantages to society. It would encourage less driving. Less driving would reduce insurance costs, uninsured costs, pollution, health care costs and costs to operate and maintain the road system. It would be much more fair and would reduce the number of uninsured motorists and the costs insured motorists and taxpayers absorb to pay for them. People who have little money and drive little are not that likely to get insurance because they have to pay so much. Lowering their costs would encourage more of them to get insurance, reducing costs for uninsured motorist coverage. It would give people more control over their insurance costs-you’d have a choice you don’t now.
The current system is not only generally unfair, it’s regressive. Since people with lower incomes tend to drive less, they are likely to be subsidizing higher-income, higher-mileage drivers.
One very intriguing point is that it appears that the number of collisions and attendant costs would decline even more rapidly than the amount of driving does. When a driver reduces her mileage she would be expected to reduce her own crashes and costs more or less proportionately. But she also reduces the risk for all other drivers, which is why crashes drop more rapidly than mileage. Additionally, with per-mile premiums tied to an individual’s driving risk profile, the riskiest drivers would realize the highest cost savings for reduced driving and have the greatest incentive to cut their mileage!!
As someone who puts many miles on my small car (mainly because I live 4 hours from my hometown and return frequently to visit friends and family there) and has /never/ caused an accident, I’m appalled at the insinuation that my insurance should be greatly increased because somehow I am more likely to cause accidents. I have always carried car insurance on my vehicle and I certainly pay more for gasoline than many people since I travel. I also rarely drive to places within walking distance (going out to eat, etc). I see no reason why I should be considered a “high-risk” driver and be charged higher insurance premiums when I am obeying all laws associated with driving a vehicle and have never caused an accident.
If you insist on creating greater burdens, let’s first look at those who truly do create a greater burden to society – those who drive without insurance, those who continually disobey traffic laws, those who drink and drive, those who cause accidents, etc.
I really like this idea. If it didn’t save me $ on auto insurance, I think it would at least save me $ on gasoline – b/c I’d be constantly monitoring my mileage & would inevitably cut back.
One thing is that this would likely be implemented with GPS or something similar. The privacy advocates would be up in arms about that one.
Otherwise, great idea.
To Stephanie #5, There are many things the insurance companies would take into account. Your driving record would count in your favor, but the high mileage would count against you (more chances for random bad stuff to happen). And do you not already tell the insurer how many miles you drive in a year?
Great column. They note that they address only 3 externalities-congestion, collisions and carbon emissions and report estimates of $300 Billion a year. Numerous studies have attempted to estimate other externalities. E.g., some have estimated that there are 6 parking spaces for every vehicle, with an estimated cost of another $300+ Billion a year.