5

2.2 Estimation procedure In the following, the drivers’ willingness to pay for not losing their driving license (WP_{12 }and WP_{24}), driving distance per 12^{th }months (X_{12}), car usage costs per km (P_{0}) 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:

(6)

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:

(7)

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.