The economics of bus accidents and traffic

Here comes a proposal to change the way bus drivers, especially on EDSA, are paid.  Supposedly, if they were on fixed salary, drivers would behave better and cause fewer accidents and traffic jams.

The incentives to drive recklessly in search of a fixed pool of passengers are large under the present “boundary” system, and also because there are more franchised buses than are needed on the road (witness how empty those EDSA buses are, sometimes even during rush hours).

Switching to straight salary may result in more civilized driving but it has a somewhat hidden “cost.”  If the salary is set too low, drivers will switch to other occupations, such as driving taxis or private cars.  If the salary is set too high, the bus operator will lose, making his franchise worthless.  Thus, this hidden cost is that of price discovery:  How can a bureaucrat, or if possible, a market equivalent, set the “right” salary?

My best guess is that the correct price depends in part on the price of substitutes.  If the light rail fares are high or if bus fares are kept low, the bus driver’s salary can be set high since there will remain enough passengers willing to take the bus.

But if light rail fares are low (through some form of government subsidy) or bus fares are set high (to enable the bus operator to offer straight salary), the bus operators will complain and also demand a government subsidy.

It is of course correct to see that the present system is inefficient because of the working of the fallacy of composition in the minds of individual bus drivers.  If one driver races to the passenger (or blocks traffic to do the same), he makes more money.  But if all drivers do the same thing, they will make the same as before, and the present boundary system is probably one that sets up a too-low final daily income for the bus driver (too low because he probably uses up more fuel than he would otherwise!).

These inefficiencies are probably there because the political and economic power that determines the form of the bus transport system is in the hands of bus operators (the passengers and drivers appear to have little say on the matter).

Conclusion:  the proposed bill attacks the economic power of bus operators.  They will likely lobby to defeat the bill, or demand a concession in the form of government subsidies.  The bill is useful in one sense.  It will raise public discussion of how to have a sane transport system that reduces traffic as well as accidents.

Traffic problems are essentially those that result in a “Tragedy of the Commons.” The solution is a multi-party negotiated solution:  Public transport operators will have to agree to limit the number of buses, and private car users or owners will have to agree to pay more road tax to subsidize public transport, including light rail.  Bus drivers will of course require a fair income at the end of the work day, while passengers will seek an affordable bus fare.   It is not an easy task, but it can be done.


One thought on “The economics of bus accidents and traffic

  1. in my opinion the initiative is good but they should also look into the fact that there are too many public transport vehicle in our streets. if there reduce the number of vehicle in the street there would be less traffic and faster transit time, more passengers for the remaining vehicle.


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