Estimating Benefits from Mileage-Based Vehicle Insurance, Taxes, and Fees

Abstract

Mileage-based pricing involves variabilization strategies, that is, strategies such as pay-as-you-drive insurance or car-sharing that are aimed at converting the fixed charges for driving to variable charges. They do not directly involve pricing of highway facilities. They nevertheless can reduce congestion by inducing some drivers to change their mode of travel or drive shorter distances. Variabilization strategies are particularly promising since about 80% of the user cost of driving is fixed. Once a vehicle has been purchased and taxes, fees, and insurance have been paid, there is little financial incentive not to use it heavily. How effective are variabilization strategies relative to highway facility-pricing strategies, such as pricing of added highway capacity? The congestion reduction and other economic benefits of policies to variabilize fixed vehicle charges are estimated, and they are compared with conventional highway facility expansion and a pricing strategy involving adding a lane and pricing it for free flow. The analysis suggests that a nationwide variabilization policy that adds 10 cents per mile to the variable user cost of vehicle use (without an increase in total vehicle user costs) could produce a 20-year stream of benefits conservatively estimated at over $44 billion.