Providing a corrective subsidy to insurers for success in reducing traffic accidents.

This paper presents the concept of a corrective subsidy that would be paid to insurers for a reduction of traffic accidents of their insured drivers. Insurers can take socially desirable measures to reduce traffic accidents. However, under current conditions, a large portion of the social benefit from the potential reduction would not be internalised by the insurers. Sharing the social gain from the actual reduction with the insurers may align insurers’ incentives with social goals of reducing social waste from accidents. (Author/publisher)