Our new paper from the Hamilton Project at the Brookings Institution estimates that if all motorists paid for accident insurance per mile driven rather than in a lump sum per year, that extra incentive to drive less would lead to an eight per cent reduction in miles driven. To put that in perspective, it would take a $1-a-gallon increase in the gasoline tax to achieve the same reduction in driving, based on 2007 average retail gas prices.

We could achieve these gains while also saving most drivers money. We estimate that roughly two-thirds of households would end up paying less for auto insurance, with each of those households saving an average of $270 per car. The premiums would still be adjusted for various risk factors -- so an urban 25-year-old with a sports car and a DWI record would pay a higher per-mile insurance premium than a middle-age rural driver with a spotless driving record. Importantly, since geography is a key risk factor, an equal proportion of urban and rural drivers would save money under this system.

[Jason Bordoff] and [Pascal Noel] are policy director and research analyst, respectively, at the Brookings Institution's Hamilton Project.