Coase-Sandor Working Paper Series in Law and Economics

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Working Paper

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Regulatory and sociological resistance to new market-driven technologies, particularly to those that rely on collection and analysis of personal data, is prevalent even in cases where the technology creates large social value and saves lives. This article is a case study of such tragic technology resistance, focusing on tracking devices in cars which allow auto insurers to monitor how policyholders drive and adjust the premiums accordingly. Growing empirical work reveals that such “usage-based insurance” induces safer driving, reducing fatal accidents by almost one third, and resulting in more affordable and fair premiums. Yet, California prohibits this technology and other states limit its effectiveness, largely in the interest of privacy protection. The article evaluates the justifications fueling the restrictive regulation vis-à-vis the loss of lives resulting from this regulation. It concludes that the social benefits of the tracking technology dramatically outweigh the privacy and related costs.

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