Traffic safety: Speed limits, strict liability and a km tax

This paper focuses on two specific determinants of accidents: speed and the activity level. If there is no government intervention, people do not take into account the full cost of their driving and they will drive too fast and too much. In our setting, the government can use three instruments to influence the behaviour of people: speed limits, strict liability and a kilometre tax. We analyse the choice of the speed and activity level under the different instruments and determine the optimal combinations. Given our assumptions we never reach the social optimum. The results are illustrated with a numerical example.