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OF DRIVING WITHOUT A LICENCE - page 8 / 14

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b e t w e e n * 2 4 W P / * 1 2 W P i s l e s s t h a n t w o . 2 T h e W P * - v a l u e s , t h e r e f o r e , i n d i c a t e t h a t d r i v e r s

gradually adjust to a life without a driving license. In the following estimations, we use the undiscounted values, WP*.

3.2 Other exogenous values According to information from the Norwegian Directorate of Roads and the Central Bureau of Statistics of Norway, a Norwegian car license holder drives on average about 10000 km a year implying that X12 = 10000 kms and X24 = 20000 kms. Larsen and Rekdal (1997) estimate the variable car usage costs per km driven, including tyre ware, insurance and depreciation to be 1.60 Nkr. The petrol costs alone amount to about 0.80 Nkr. Whether the drivers take all variable usage costs into account when making the decision to drive or not, is open to debate, see for example Button (1993). In the following we will therefore do our calculations under two assumptions: 1) that drivers perceive only a small part of expenses other than petrol costs as km-dependent (P0 = 1.00 Nkr, lower limit); and 2) that they take all relevant km-dependent costs into account (P0= 1.60, upper limit).

Based on data from 1998/99, Voldmo et al. (1999) estimated the short-term elasticity of car usage with respect to car usage costs in Norway to be -0.12. Their estimations were based on cross-section data, holding car ownership constant. Goodwin et al. (2004), based on a literature review of a large number of studies for many countries, suggest a short-term car usage elasticity with respect to fuel price per liter to be -0.10. Bearing in mind that petrol costs amount to about half of total car usage costs in many countries, this implies a short-run elasticity with respect to total car-use costs of -0.2, so that car usage in Norway appears to be less price elastic than in many other countries.3 This is not surprising because, compared to many other European countries, a larger proportion of

2

W P * 2 4 =

1 2 2 W P

(1+1.0176) , WP24

=

2 4 4 W P

(1+1.0176 +1.01762 +1.01763 )

3 From the formula of the elasticity of composite functions, see for example Sydseater and Hammond (1995), follow that ELV X = ELP X ELV P in which ELVX and ELPX are car usage elasticities with respect to petrol price and car usage costs, respectively. ELV P is the elasticity of car usage costs with respect to petrol price. When ELVP < 1 it follows that ELV X < ELP X .

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