2.2 Estimation procedure In the following, the drivers’ willingness to pay for not losing their driving license (WP12 and WP24), driving distance per 12th months (X12), car usage costs per km (P0) and the 12-month car usage elasticity (-d) are known or exogenous. The value of λ and thereby the value of the 2-year elasticity (-λd) can then be estimated using the following procedure:
Stage 1: Estimating a. Taking equation (1) as a starting point, the value of a can be deduced from the following formula:
d P X a 0 1 2 ⋅ =
Stage 2: Estimating Q.
From (4) follows that the value of Q is determined by the following equation:
0 P Q − = µ w h e r e = µ
a d W P − * 1 2 ) 1 (
d P − + 1 0
1 1− d
In the following we make the reasonable assumption that Q is independent of the length of the period the driver loses his license; that is the total perceived extra costs per km of driving without a license is independent of the length of the suspension period.
Stage 3: Estimating λ . Using equation (3) in combination with equation (5), the value λ that satisfies the latter equation can be found by simulation.