Traffic Congestion

1. Policy Innovations in SingaporeWu XunLee Kuan Yew School of Public PolicyNational University of Singaporesppwuxun@nus.edu.sg

2. Traffic Congestion Beijing Moscow Los Angeles Delhi

4. Market Failures, Government Interventions and Government Failures Welfare Economics Public Choice Theory

5. Government Failures, Market Mechanisms and Market Failures Welfare Economics New Public Management

6. A Vicious Cycle? Government Interventions Market Failures Government Failures Market Mechanisms

7. Duality Between Market Imperfections and Government Imperfections “Until we realized that we are choosing between social arrangements that are more or less all failures, we are not likely to make much headway.” Coase (1964)

8. Strengths of Market and Government Strengths of Government Strengths of Market • Efficiency gains from competition • Freedom of individual choices matching with their preference • Fast responses to changes in the environment • Financial sustainability in service provision • Maximizing over a large pool of resources (economy of scale at the societal level) • Quick and sure changes due to the use of coercive power of the state • Pursuit of social goals other than efficiency • The ability to alter incentive structures • Accountability to public majority in some cases

9. Policy Innovations Government Interventions Market Imperfections Government Imperfections Market Mechanisms Policy Mixes Strengths of Market Strengths of Government

10. Policy Innovations in Singapore • Land Transport • Health Care • Housing • Education

11. Typical Market Imperfections in Land Transport Market Imperfections • Loss of efficiency due to Externalities Solution to externalities: Cost of car ownership=prices + additional charges reflecting externalities But how can the government determine the right amount of the additional charges reflecting externalities?

12. The Use of ADF (Additional Registration Fee) • In 1968 Singapore government introduced ADF as a percentage of the Open Market Value of vehicles to bring down the increase in vehicle population • 1968: 15% • 1972: 25% • 1974: 55% • 1975: 100% • 1980: 150% • 1983: 175% • Politically unwise in keeping increasing ADF in such manner • The increase of ADF discouraged existing vehicle owners from replacing their cars and encouraged new car buyers to buy used cars

13. The Use of ALS (Area Licensing Scheme) • In 1975 Singapore government introduced ALS to control the usage of vehicles. Under ALS, an individual vehicle owner must purchase a permit to drive into the designated “restrict zone” during peak hours • Quite effective but difficult to use more extensively due to high costs of enforcement and strategic behaviors of vehicle owners

14. Typical Market Imperfections in Land Transport Market Imperfections Government Imperfections • Inadequate information • Lock-in and rigidity • Administrative costs • Strategic response • Loss of efficiency due to Externalities ADF ALS How to take advantage of strengths of both market and government?

15. Policy Instruments Introduced after1990 • VQS (Vehicle Quota System): sets a quota to the number of new vehicles to be registered in Singapore each year • Electronic online auction system for allocating COEs: under such system, the successful bid price for the COE reflects the market clearing price that people are willing to pay to own a car. • ERP (Electronic Road Pricing) • Low threshold speeds (set by the government at 45 km/h on expressways and 20 km/h on arterial roads)

16. Additional Cost of Car Ownership in Singapore: ARF plus COE

17. Determination of COE: Market Conditions (including the Number of Quota)

19. Car Ownership in Selected Countries

20. Electronic Road Pricing (ERP)

21. Map of ERP System

22. ERP

23. Determination of ERP Rates

24. Determination of Quota: Inadequate Information May Still be a Problem • 2008 Net increase allowed: 3% of vehicle population • 2010 Net increase allowed: 1.5% of vehicle population • August 2012 Net increase allowed: 1.0% of vehicle population • February 2013 Net increase allowed: 0.5% of vehicle population However, the nature and potential consequences of inadequate information would be very different between two government interventions: determining quote and determining total additional costs of car ownership

25. Pursuit of Social Goals other than Efficiency • The allocation of COEs through auction system is efficient as the willingness to pay or purchasing power determines who can own cars in Singapore. • What about equity as low-income households are bid out of the market for vehicles altogether? • The rapid development of public transport is a part of the government strategies to address such concern. A set of high standards are specified to guide route design, scheduling and safety. • “HDB towns must have MRT and/or bus services that directly connect with city centre,” • “route must be direct, not more than 30% longer distance than comparable trips by car.”

26. Market Imperfections • Inadequate information • Lock-in and rigidity • Administrative costs • Strategic response Policy Innovations in Land Transport Government Imperfections • Sensitive to fluctuations in demand and supply • Fast responses to changes in the environment • Loss of efficiency due to Externalities • Lack of mechanism to pursue social goals other than efficiency • Policy Mix: • Auction System for COE VQS • ERP Low Threshold Speeds • Rapid development of Public transport system • Fast attainment of goals due to the use of coercive power of the state • Pursuit of social goals other than efficiency

27. Typical Path of Policy Reform in Health Care Market Imperfections Government Imperfections • Loss of economic efficiency due to classical market failures such as public good, externalities, natural monopoly and Information asymmetry • Market power • Lack of mechanism in pursuing social goals other than economic efficiency Health System with Public Financing and Public Provision Health care as the responsibility of the government • Inefficiency of government owned health care facilities • Regulatory capture • “buffet” syndrome • Inadequate information • Financial sustainability Market-Oriented reforms such as user charge, privatization, contract out

28. Policy Innovations in Health Care Market Imperfections Strengths of Market Strengths of Government Government Imperfections • Loss of economic efficiency due to classical market failures • Market power • Lack of mechanism in pursuing social goals other than economic efficiency • Inefficiency of government owned health care facilities • Regulatory capture • “buffet” syndrome • Inadequate information • Lock-in and rigidity • Financial sustainability • Public ownership of majority of hospitalsMedisave • MediShieldFreedom to choose hospital bed class • MedifundMarket competition for out-patient care • Government Subsides for hospital careClustering of public owned hospitals and health care facilities • Transparency of hospital bills

29. Conclusions • Policy mix as a form of policy innovations may become the norm of response in address many contemporary policy challenges. • The policy innovations may appear as the combination of a set of seemingly unrelated or even contradictory policy instruments, and the adequacy of policy mixes depends on their effectiveness to address both kinds of imperfections simultaneously. • The efficacy of potential policy instrument in consideration should be assessed in the context of the strengths and weaknesses of existing policy mix in addressing market and government imperfections. • The concept of the policy options can be broadened to compare not only different policy instruments, but also different combinations of policy instruments---different policy mixes as options. • Optimal policy mixes may evolve over time due to changes in factors determining market and government imperfections.

30. Future Research Questions What kind of institutional arrangements might be more conducive to the development of optimal policy mixes or policy innovations? Are there any mechanisms that help to generate optimal policy mixes or policy innovations in circumstances that are not conducive? Would more widespread use of policy mixes have an impacts on shaping the institutional environment in which policy decisions are made and implemented?