Russ Roberts

Munger on the Political Economy of Public Transportation

EconTalk Episode with Mike Munger
Hosted by Russ Roberts
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Michael Munger of Duke University talks with EconTalk host Russ Roberts about Munger's recent trip to Chile and the changes Chile has made to Santiago's bus system. What was once a private decentralized system with differing levels of quality and price has been transformed into a system of uniform quality designed from the top down. How has the new system fared? Not particularly well according to Munger. Commuting times are up and the President of Chile has apologized to the Chilean people for the failures of the new system. Munger talks about why such changes take place and why they persist even when they seem inferior to the original system that was replaced.

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0:36Intro. Trip to Chile, markets and incentives. Snowing in the mountains of Santiago. Traffic's pretty bad. What should we do through contracts and markets and what should we do through the public sector? Santiago is actually a little east of Washington, D.C., in the eastern time zone. Chile's been a laboratory for privatization. U. of Chicago trained some Chilean economists in the 1960s and 1970s, professors today. Center-left coalition today has accepted a lot of the pro-market reforms, but have they bought into them or are they just waiting? Chile used to have an almost private mass transit system. In 1975, built a subway, metro system, one of the biggest in Latin America. Santiago not quite as dense as NYC but close. On the surface, had a private bus system. No public subsidies, but system operated in the black. Consertacion [Consertacion Nacional Democratica, political party] looked at that and saw profits. Took a system that was $60 million per year in the black; now it loses 10 times more than it was making. How many passengers? Ridership has gone slightly down. Could argue that they were catering to mostly the rich, and by publicizing they would serve a larger audience. There had been different classes of service--now everybody has the same class of service. Commute times tripled, which is why people stopped using mass transit. Now people use cars. People didn't move out or stop working; they are driving cars on crowded streets. Key difference in the routes: used to be redudancy in the system. Always possible to get to work on time, and low variance. Now up to 2 hours but it may take 4 hours.
8:36Incentives that the bus drivers themselves face. Natural experiment in the use of incentives. Before they were paid by the number of drivers they could pick up. Looked like the Chariot race in Ben Hur. Problem with the old system. Accidents, a few fatalities, usually only wounded people. Concertacion and President Bachelet saw both profits and drivers' greed as dual problems. Human transubstantiation. Pay is now not by passengers but by arriving on time. No incentive to pick up passengers if they are running after the bus; but also no incentive to stop if he's running late. Widely verified; Chilean listeners invited to write in. People respond to incentives not just in markets but in any setting they find themselves in. Mistake that the government of Chile made was they thought the problem is: in a market people are greedy, so let's take them out of the market. Paying drivers by schedule meant at a minimum they weren't going to go out of their way to pick passengers up. Also, changed style of buses. Buses used to be nimble; some old, belched black smoke. Government bought new buses, 4 or 5 times as long, articulated, bends in the middle, bendy bus. Four doors, only front door goes in to the driver to pay him. Driver doesn't get paid by how many pay him, but only by time. People scampered in the back doors; driver couldn't spend time going to the back to insist that they pay. Drivers routinely watch people get in the back doors. 100-foot long buses. St. Louis, light rail system, fad, too expensive to build a subway, packed for Cardinals games but empty during the middle of the day, between 9 and 4. The buses in Chile seem to be packed all the time; not nearly enough bus stops. 6 million people in urban Santiago, bus is losing $100/per person per year, for the privilege of not riding the bus. President has said "We owe the people of Santiago an apology, particularly the poor people." A lot of people actually lost their jobs. But less inequality, so happier.
18:29Return to technical details. Map of the routes. Used to be the bus routes and the metro routes from where people live to where they work and were parallel. Cost per passenger for buses is still about ¼ of the cost per passenger for the metro. What the city did was eliminate almost all the bus routes that parallel the metro. Wait for bus; get off bus; wait for metro, which is crowded and might have to wait; then get off the metro and get on a bus with more waiting. Instead of looking at what people wanted, say as evidenced by what the map had evolved to look like, they drew it as what they thought it should look like from a planning perspective. Metro could not be more full but it still loses money. Could raise fares; could raise time. Also, new big bendy buses are six or eight inches wider than the lanes of Santiago. So accidents still happen often. Chile is not corrupt. It just seemed more rational--could put more people on them; wait longer and have fewer buses. How many private companies before? 3000. Probably some were small companies. Proportion of ridership from large companies? Probably mostly from a few largest companies. 4.8 million are from areas around Santiago areas. Express buses without stopping even with amenities like food and coffee; plus local buses that stopped at every corner.
24:49Political economy. Private system that existed before had some visible negatives. Too many buses, inefficiencies. Political attractiveness to "publicize," "nationalize," "citicize" the system. Against the law now to own a private bus service. Maybe the system now actually does work--fed bad info. Why doesn't government return to the former system? Markets provide two things: information, and the incentive to do things in a particular way rather than some other way. Hard now for planners to go back, to know where to put routes now. Think what we need now is a reform. Unless you think of the market alternative you endlessly reform. Greed and profit. At least the current system solves that. Harper's Magazine ask readers to coin words. Everybody responds to incentives, including politicians. Puzzle: you've done something really dumb and people are mad about it. Go to unclog the sink drain. Take stopper out, etc., but forget to reattach the pipe. Floods vanity below the sink. Usually easy to put it back the way it was. What politics seems to do is to leave it disconnected. Different mental model: suppose you think water flows different ways because of different systems. Could think: This is public water and it will go where it should go. Even if you left it disconnected and lined it up just right it might mostly drain. Ethanol problem: corn prices have gone up. A lot of people say that's a mistake; but it's not repealed yet. The people who are making money from it don't want to repeal it. Bad policy might persist because people get emotionally attached or because the people who have benefited from the new regime are resistant in ways that wouldn't have existed in the old regime. Pareto superior policy: no one is better off from the new bus system in Chile. Volvo, the bus maker, is helped but not really a stake holder. Public choice approach, look at interest groups. The people in the government sincerely want to improve their society.
35:32Are there any voices to go back to the old system? No. It would be political suicide. But why? Voters are tormented by the current system. Take the former Soviet Union, 1917 revolution, at the time greeted as a great success. "I've seen the future and it works." But it didn't work. Couldn't feed their people, bad weather for 70 years, poor incentives for their farmers. Suppose for the moment that some would have agreed that the system was horrible. System was corrupt, and they saw that and were aware of it. Causation wrong, thought corruption caused the difficulties rather than the system causing the corruption. But Chile is a democracy. Why can't a politician say "I have one issue: I'm going to go back to the bus system when it worked well"? Why wouldn't that strategy win? How many cities in the U.S. have private bus systems. But that's different--Chile's had the experience. They don't think of the old system as being private. They think of it as the old system. Ude, Chicago School based party in Chile, does promote return to the private system. Possible that the average citizen would just like the new system to improve. Bastiat: The State: each of us can ride at the expense of all of us. ["The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else."--Bastiat] Curb Rights, Dan Klein, about taxis more than buses, distinction gets blurred when talking about multiple people. Bus systems have almost no riders. Why don't we allow private buses? Pat answer: People don't have the experience. Mental models. But people have the experience of private sector in other things that work great. No one says we should have government movies. Airports: private bus system only in certain places and they get a monopoly. The way you would introduce private buses would start with a private entrepreneur proposing it, and then there would be objected. Brown cloud over the mountains: inversion of clouds like in Mexico City, so more car driving is probably not ideal. Was also complaint about old buses. But that's a separate problem, environmental regulations.
46:00More on mental models: comments invited. Organ sales. We have a system in the U.S. where we lament that there are not nearly enough organ donors. Somebody who needs something offers a certain amount and someone who has it asks himself if that amount is worth it. After a death, millions thrown away. Cannot write a contingent contract allowing sale of your organs after death. You are welcome and encouraged to give it away. Mental model: it creeps people out. Incentives. Wrapped up in this is that a lot of the time our objections to incentives are an objection to wealth. We go from "You shouldn't have to do that" to "You shouldn't be able to do that." Moral hazard problem. More people would put it on their driver's licenses if there were a flat fee of $1000. Might take more than $1000, might be $100,000. We'd find out with a price system. Right now a liver is more than a million.
51:07Economic education. If people think about the consequences of their actions are it will increase their demand for good policies. The mental model concept suggests that is a pipe dream. A lot of people with half an hour might at least say they are unsure of their previous beliefs. Failure of the Soviet Union: People did learn the lesson that social planning doesn't work really well. But they only learned it in certain situations, not for the bus situation. But the people in Santiago said it was a problem of social justice. Same solutions are being imported under the social justice agenda. All that's different is the rationale. Interesting that there is still an entrepreneurial opportunity for that politician. Douglas North.

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COMMENTS (53 to date)
mauricio flores writes:

I actually used the old system back when i was growing up in santiago. The last time i was there (5 years ago) it was still in use. I have to say that i have never thought about how nimble the old system was. I remember that from where i lived in santiago , there was 5-6 lines than ran parallel with the metro system if i wanted to go downtown (with that i mean the municipality called santiago, i lived in a municipality called san miguel, about 20 kilometers from the downtown area). The coolest thing whith the old system is how long the routes where, you could get pretty much everywhere from everywhere, u just had to signal the bus to stop and it would stop, yes it was chaotic, but people used it all the time and the only complains about the "system" itself came when the prices went up, that was pretty much everytime petrol prices went up. I haven't found to much info on the debate about WHY they decided to change the bus system in the first place.

My personal opinion is that since chile's 200 year independence aniversary is in a couple of years, the concertacion presidents have started to increase fiscal expenses in a massive scale, most of it on giant projects of mostly symbolic effect. The transantiago system cannot be other than just another of those projects. the main worker's organizations must also have had something to say about this since drivers now get a fixed wage and nice uniforms (may sound trivial but that is seen as an improvement down there).

I really doubt that "la concertacion" would survive another election though. the opposition will play the slower economic growth card, and that will surely have an effect in the outcome. besides this administration has had a couple of scandals (corruption in the education and sports/culture deparments). But the opposition candidates could also fall into the populist trap, but they have good advisors, and i don't doubt that some of the chicago trained economists will have a role in defining some aspects of the "economic plan" for an eventual new oppsition goverment.

I like to think that most of the chilean voters really wouldn't mind going back to the main aspects of the old bus system, but knowing the chilean culture, i belive that most of the opposition to that would be because the new buses are actually prettier than the old ones. believe me, it may sound trivial, but that is some of the
stuff that matters down there. There was a LOT of contrast between the cuality of the service in different routes and parts of the city but that also reflected pretty well the risks that some of the companies where exposed to. vandalism and crime would often cost money and lifes (of the drivers) so that would obviously be reflected on the cuality of the buses. But i have to say, i never heard of buses that had food service on board. I knew about buses with tv's that showed the news all the time, in the metro they also have tv's with 24/7-news on. the metro used to be very clean and neat, it was also very puntual, with trains arriving every 2 minutes or so. i don't know how the metro is today though.

If there is anything anybody may wonder about how people experience the system now and before, just let me know, i have good sources.

Sean writes:

What a great discussion this was, Mike and Russ just click every time they do an episode together. Although I am an advocate of public campaign financing (a great potential topic, perhaps already touched on, for a future podcast), this episode illustrates where privatization and market forces really do produce a better outcome for everyone. One of the things that seems rather intuitive but which I had never considered was that one of the benefits of markets is information, that you get feedback, in the form of revenue and perhaps directly from customers, about what strategies (in this case, bus routes and amenities) work and which ones do not. It makes me want to send this episode to our city mayor's office with the hope that someone will convince themselves to listen to it and let the lightbulb go off in their head. We could use private municipal and state bus systems in the US...perhaps just one more step to getting people out of their cars and trying to lower our carbon footprints.

Phil writes:

Toward the end of the podcast there was a discussion of sorts about signing contracts to donate human organs for transplant. Any other discussion that I have read or heard about this topic always questions the wisdom of such a "free market" contract system when there are countries like China who have been rumored to have slaughtered their prison inmates to harvest their organs. Is that not still a concern?

Floccina writes:

Perhaps people just see a failure to plan as a plan to fail. Surely people see planning as better than not planning.

Also take the case of how people view petroleum prices, when they look back they see a failure plan and they do not see that it was impossible to know the future. People seem to be unable to see that we cannot/should not react to high petroleum prices until they get high and that we saved a lot of money relative to the Europeans by waiting. (Perhaps on an individual level people could react to high petroleum prices before they got high but I like to ask people who have been prediction peak oil since 1974 how much petroleum that have stored away or if they at least bought those 7 year petroleum futures.

And BTW once you have Government running some think like transit for a while it gets very difficult to see that path back to free system.

As far as trying to convince people I try to ask, should people be allowed to do X. Like should people be allowed to pick riders up in thee vehicle and charge them for a ride? The words “free market” are so non human. Should we fine you neighbor if he buys a big van and starts to make money driving back and forth and charging people for rides?

Ignacio writes:

I am from Santiago, and it is very hard to understate the mess caused by the change in the public transportation system.

Santiago is a city where most of its population use public transportation (including myself) and the significant decrease in its quality caused inmense suffering. People who were used to wait for 10 minutes or less for a bus that would take them accross town in 45 minutes need to wait for over 30 minutes now, having to switch buses (sometimes more than once, and at stops that could be several blocks away) and doubling or tripling their travel time. This causes havoc with family and "down" time.

Many areas of the city are not not served (or underserved) by the new buses and the ministry of transport has had to draw new routes with astonishing frequency. Before, multiple small private companies adapted their routes seamlessly and teh government could concentrate on its proper role.

The system was changed from a self-financed and profit-produicing one to one that requires huge subsidies and causes losses to the new bus companies. This is a terrible loss of wealth, in financial terms and with respect to the time lost by passengers.

This is all due to planners belief that their intelligence was better than the wisdom of hundreds of bus companies.

At least, this has discredited central planning in Chile for the foreseeable future.

T. Fry writes:

St. Louis's in the last year also "rationalized" their newly extended metro by eliminating parallel bus lines and replaced them by feeder buses to the metro. I don't have all the rider statistics, but bus riders I have talked to tell me this greatly increases their commute time just as it did in Santiago. It was a political winner though because it increased ridership on the billion dollar boondoggle and the operators can now say "see, see, we told you ridership would be high".

My wife and I have a fun little hobby here in St. Louis. When we see a municipal bus go by we count the riders. Anytime of day, except rush hour, which means anytime in a 24 hour period the count usually varies from 0 to 3. These are large expensive buses with well paid drivers. Imagine the losses. When it is zero we tragically enjoy and laugh and knee slap at the absurdity that no one notices or cares.

A long time ago St. Louis too had busy and large private street trolley car system. It was my understanding that it was put out of business in the same way the owners of apartment buildings in the Bronx once were. The city regulated the price below their costs.

A local Fed economist wrote a paper that figured it would have been cheaper to buy every St. Louis metro rider a new Lexus than to have our metro system.

St. Louis a long time ago was the fast growing Shanghai of its day. The prospects of any "Chicago Boys" taking over here is dim.

T. Fry.

Ethnic Austrian writes:

I know nothing about the situation in Chile, but I read the wikipedia articles on Transantiago and the Crisis del Santiago. Michael Munger's assessment doesn't reflect the information I got on Wikipedia. The new system doesn't seem to be a soviet style governement run system at all. The governement issued contracts for private companies to run the actual bus lines. This system is normally refered to as a private system. Usually, when a public transportation system is privatized, this is the way it is being done. Via private companies as contractors.
Also the former system doesn't seem to have been as laissez faire as Michael Munger implied.

The biggest problem was the radical switchover from the old system to the new system, which is referd to as "big bang" like on Wikipedia. A stepwise approach would have been more sensible.
What happend in the first weeks of operation was that the private companies didn't fulfill their contracts, specifically by providing only a fraction of promised buses. (1400 instead of 5000) This frequently happens when private companies are competing for governement contracts. They promise to much to early. I remember the german railroad corporation having similar problems a couple of years ago with malfunctioning Siemens ICE trains.

The initial problems appear to have been resolved. Ridership seems to be up, contrary to what Michael Munger claimed and that despite more passangers using the metro as well.
One of the further measures planned for the future is that express lines will be re-established and the special bus lanes, which had been reserved to these express busses, will be reinstated as well. It seems like part of the reason to not have express lines was to free up highway lanes. Such special bus lanes are of course governement subsidies subject to central planning.

I would like to know whether private bus operations were completely outlawed. Wikipedia doesn't say anything about the subject. Since one of the central aspects of the new system was the introduction of an electronic debit card for bus fares as well as new safety regulations, it might not be feasible for small companies to provide additional service.

It is in any case to early to make a final assessment of the new system. It is only 18 months old after all. Let's reevaluate the situation in two years or so.

I would be pleased if Michael Munger followed up with information supporting his point of view regarding the Transantiago.

Mark Selden writes:

Another excellent podcast. Hey I agree it would be great to have a word for insights that seem obvious, but over time reveal themselves to be nuanced and powerful. I remember seeing the prominent statement “People Respond to Incentives” in chapter one of Mankiw’s economics book, and thinking “Pleeeez, I’m not in first grade”. After becoming an Econtalk junkie, all I can say is “Whoops”.

I’ll bet those Germans have a word for it.

Phil:

I’m sure we all find the harvesting of prisoner’s organs morally repugnant, but what about the idea of transactions between willing buyers and sellers? I find it fascinating because, more than anything else I can think of, economics takes us into the realm where the right thing to do has a very ugly side.

Currently, the sellers of kidneys are generally the most desperate and downtrodden of Pakistan. Buyers are the affluent from other parts of the world. Selling kidneys in Pakistan was recently outlawed, which has apparently driven the practice underground with the obvious result that conditions are worse for the seller. As usual, when the government tries to thwart willing buyers and sellers, everything gets screwed up.

But to me, the endpoint of an open market would be eerie. All aspects of the transactions would be improved, including the quality of the surgery, but part of the “deal” would be a huge expansion of the market. Maybe I’m not focusing enough on the joy brought to those in need of a kidney, but there’s something unsettling about expanding and institutionalizing the desperate actions of those in desperate conditions.

Ed writes:

So politicians use class warfare terminology down in Chile as well. Small world.

I found Mike Munger's description of what happened in Chile insightful. Even though Chile had the experience of a private bus system, there seems to be little demand by the populace to return that system largely because the people don't understand how it was overall a better system.

So this explains why in spite of America's history with the free market that we still accept the existence of government run monopolies such as the post office.

Gary Rogers writes:

This is exactly the scenario I expect when we nationalize our health care in the next five or ten years. We are already being fed the propaganda about inequities, the need to manage the system and how well other countries are doing. Plan on bringing both Mike Munger and Arnold Kling on in ten years and you can talk about that train wreck. Or, better yet, maybe there is a way to stop it.

Great program! Thanks!

Antho writes:

Best podcast ever. Mike Munger is my hero. Keep up the good work.

Unit writes:

I love coming up with neologisms. So here are two:

russmungermania: (self-explanatory)

pseudo-evident: an insight that everybody knows on some level but is not so obvious (as opposed to self-evident). Example: "we hold these truths to be pseudo-evident, that markets are not created, but emerge from the free interaction of individuals pursuing their own happiness."

This bus-story is a beautiful example of Hayek's proposition that dispersed knowledge cannot be effectively communicated to a central planner. It seems clear that bus-routes need to change over time to adapt to the ever-changing needs of the population. The free-market solves this problem by letting entrepreneurs chase the profit wherever it may be. What can planners do? Well they could start by canceling routes with few passengers (so they would need to start counting people on the buses). But that wouldn't be enough because people could still be waiting hours on the curb. So they need to also count how many people gather up at each bus-stop throughout the day. Would that mimic the free-market? No. Because in the planned system people go where the bus-stops are, while in the free-market it is the bus-stops that go where the people are.

About the Soviet Union. I think people generally do not analyze the nature and causes of its collapse. Instead they just assume it was due to the tyrannical nature of its regime and do not worry further because we have a democratic regime (there's some truth to this view, but it is not deep).

The final comment is that markets take years to grow, adapt, evolve, and often times there are barriers that prevent this process to even begin (a bit like planting tomatoes next to a walnut tree...). On the other hand, it's really easy to destroy them.

karthik writes:

one of the best podcasts ever!

one other city where I've seen private buses at work is Delhi. They have this network of "blue line" buses which are essentially licensed private operators.

i used to have several problems with that. for one, they used to drive extremely rashly. the bigger problem was that they would stop for too long. at every stop, they would stop for several minutes, waiting for passengers to board so as to increase their profits! exactly the opposite of what the problem now is in Chile.

in Bangalore (where I live) too, private buses serve a few markets. again, the problem is they halt too long. these halts are not only bad for the passengers inside, they also frequently lead to traffic piling up

Andres writes:

Though I agree with Munger's version of what happened as a result, there are many things he uses to put some "salt and pepper" that are actually wrong.
1)There never was a "differentiated" mass transport system (with food and coffee). Only one line after an auction, that for some time offered the newspaper and then stopped doing it.
2)It's impossible to understate the problem of pollution in Santiago. Therefore, when somebody comes offering a solution for that by solving the overlapping in routes, the problem of buses running empty at midday, etc many people wanted to believe that was possible. Nobody ever mentioned the problem of a system making money as a reason to change it.
3) The idea of getting rid of the incentive to drivers makes sense when you combine a vision of a maniac steering at 50, 60 and even 70kmh in an old bus with the stories of people that go to Europe and see systems that work on the time with central property.
4) As another reader said, this is not a public system, it's private companies operating under contracts with the authority, and that is precisely what makes it so hard to go back. Once the old system has been dismantled, and that you have signed expensive contracts with other international groups, there's no previous state to go back to.
5) This system wasn't designed by Ms. Bachelet's goverment, but by her predecessor: Ricardo Lagos. And she was "forced" into it because of the agreements already in place.
6) You must remember that the authorities here do not believe in markets, so any failure in the planning will not serve as an excuse to go back to markets, but as "something we have to fix"... it's in their nature, they can't help it.

I do believe the main ideas of the podcast are still true, but we don't need "the salt and pepper" to reinforce them!

Best wishes

jayson writes:

Perhaps a private transit system could help in the western US. Here in WA State the systems are mostly county run, so there is very little cross county transportation aside from Greyhound, or the Amtrak line that runs down the coast. About 1/3 of the people I know work in a different county than they live. For now I carpool, but mass transit may be more efficient. Thanks again for a great podcast, I look forward to Mondays to listen to your podcast. Good luck Mike with the campaign to become the Gov. of NC!

Michael T writes:

Great podcast. This is an awesome example and topic. I have to say that I think that Munger is being more than fair to the reasons that people might be against the market. I too would love to see more evidence -- hopefully Munger's paper on this topic will be available soon!

As to the prisoners in China, I don't think the problem is that they are slaughtering prisoners. I understand the problem to be that the execution for people on death row is scheduled according to the need for those organs and the prisoners are shot in the head so as to preserve the organs. I understand why this is repugnant, but I don't know if it is not efficient. I am unable to respond to the moral question. Isn't it interesting to think that murderers can be redeemed to society by saving multiple lives through their organs?

Steve Hemingway writes:

This podcast was great. You two guys should have your own weekly radio show, something along the lines of "Car Talk", except that listeners could ring in with questions about why the world is how we find it.

If Mike wants to do some more field work he could do a lot worse than examine the UK National Health Service which was 60 years old a couple of days ago. This is our fully-socialised system of medical care than has seen the UK sink further and further down the world rankings in terms of health outcomes but which remains, in the words of one former UK finance minister, "the closest think Britain has to a national religion".

Market Urbanism writes:

In a perfect tie-in with yesterday’s podcast on public transportation, Ikea’s new Brooklyn store provides free bus and ferry service to locations in Brooklyn and Manhattan. Not only is it free, but it’s nicer than the $2/ride public alternative.

Most interestingly, neighbors of the new store in the Red Hook neighborhood are using the buses to get around town. When I first heard of this I thought riders would have to show a receipt or prove they are a customer, but Ikea is happy to provide this service to anyone! What a great neighbor…

Ikea Provides Private Transportation, Santiago-Style
New York Daily News - Commuters using Ikea shuttle bus to bypass MTA routes

Could Ikea's popular bus service divert enough commuters away from public transportation to cause it to be banned like in Santiago?
How much will the superior new transportation option incentivize people to move to previously transit-starved Red Hook? If so, for how long will Ikea continue to provide this service for free?

Vintner writes:

I see a private bus system in operation every morning in central San Francisco where I live, and it's very interesting.

Twenty years ago the best designers and engineers wanted to live in suburban Silicon Valley, around Palo Alto (and eventually further south). Large campuses were developed there, where land was inexpensive. But in recent years, the best people have changed their minds and now prefer to live in dense metropolitan San Francisco. The auto commute is 60 miles or so, and takes about an hour each way in stop-and-go traffic. Very many smart and sensible people refuse to drive it. This led to the explosion of start-ups in San Francisco.

Large companies such as Google and Microsoft with large establishments in Silicon Valley have opened smaller satellite offices in San Francisco, but space in the city center is expensive and large buildings are hard to find, so by and large they are solving the problem by offering private bus service to bring their San Francisco employees to work and back.

Every morning large and very clean new buses (like European touring coaches, with no external markings) follow their own routes through fashionable areas of San Francisco picking up passengers. On board the coaches have comfortable individual seats, coffee, and WiFi (with backhaul over 3G cellular) so riders can get on the internet, send and receive email, read and write documents on the company website--the internet access is excellent. Voice telephones work, of course. The bus windows are covered with dark film so the working environment is actually pretty good. Bring something to eat. Employees can start their working day on the bus for an hour, rather than having the lost time of a stressful commute. In the evening the buses run the other way, dropping employees off at their stops throughout San Francisco.

Each employee gains two very valuable hours daily. The stress and time of the commute are bad enough that buses are a big recruiting incentive. The downside for an employee is that since the service is employer-provided and can't be bought separately (at least not yet), it tends to make job mobility less. The old joke in Silicon Valley was that if you didn't like your job, just turn your car in at the next parking lot along the street some morning. You can't do that if you're on your employer's bus, which is an advantage for large employers.

This private bus system only works because San Francisco is small (about 7 miles square, total) and the residential areas are urban-dense so it's quick to fill a coach at a few bus stops. The idea would be unattractive if the buses had to wind through huge low-density suburbs picking up individual riders. Also, the system runs from stops in one county through a second county to destinations in a third county, so there is no political opposition from the public transit systems operating in each individual county. (The Bay Area unified system doesn't run into Silicon Valley at all, so it's not political competition, either.)

People who live in San Francisco and work close to home ride the public Muni system which is like every other public transit system--unreliable, late, slow, graffiti-covered, filled with petty criminals, noisy, with uncomfortable plastic seats, no amenities (certainly no WiFi), and operated badly by rude and undisciplined members of public employee unions. The contrast with the clean, quiet, efficient private buses to Silicon Valley is so stark that fifteen minutes on a Muni bus can easily be much worse than a productive hour on a private bus.

It will be interesting to see whether there is any feasible way to offer these buses as a service sold directly to passengers (or perhaps for regulatory reasons sold to employers seat by seat, for them to pass the cost on to an employee or not). The biggest barrier is apt to be that employers in Silicon Valley are spread out so widely in the suburban sprawl there that travel times become too long, because a single "bus stop" can often serve only a single employer.

Russ Roberts writes:

Vintner,

Can you put me in touch with someone who is involved with creating this private bus system? Or at least with using it? Please email me at mail@econtalk.org.

Thanks.

John writes:

A great example of the private sector providing mass transit is the proliferation of bus services in the northeast United States. I know the distance between New York and Washington is longer than a commuter bus, but the same economic principles apply. The competition on these routes have resulted in a wide variety of choices that provide either a better price or more amenities for riders than before many of these operations were founded.

botogol writes:

Bendy-Buses

Here in London we also have bendy-buses and I can say that our experience is similar to Santiago's... and different
- the buses are indeed very long and very wide and anyone who has been to London will instantly guess that they are, indeed, too long and too wide for our narrow and winding streets (they are probably Manhattan-optimal)
- just as in Santiago they cause accidents
- just as in Santiago they are plagued by fare-dodgers who jump in the back doors exactly as described, and are ignored by the hapless drivers

Interestingly, though, given Russ Roberts' expectations, our newly elected mayor Boris Johnson did have as a key part of his campaign a promise to abolish bendy-buses and this was undoubtedly part of his appeal.

We have no sign of a private bus system though!

Great podcast...

Market Urbanism writes:

bogotol:

When I lived in Chicago, those articulated buses caused huge problems.

Once, Michigan Avenue was in complete gridlock for miles when an articulated bus broke down in the middle of an intersection along the river. The bus was longer than the street was wide.
It took me over an hour to get through that mess, and this was a Saturday morning.

I was told it happens all the time.

Floccina writes:

I think that ethnic Austrians criticism ( It is in any case to early to make a final assessment of the new system. It is only 18 months old after all. Let's reevaluate the situation in two years or so.
) is fair, after all when deregulation goes bad as in the California electric power partial/semi-deregulation we all say that it takes time for long term contract ect. to settle in.

A better comparison would be between the old mostly private Santiago system and Government run NY City system or better yet some government run Latin American system.

In my own experience in Tegucigalpa Honduras the bus service seemed to have some private aspects (they did the chariot races thing to get the passengers, it did not seem so dangerous to me) and it was quite good in comparison to my native Providence RI.

Bill Nelson writes:

There's a good example of mass-transit privatization not far from Santiago. In 1994, the public metro system of Buenos Aires was turned over to a private company, Metrovias.

Afterwards, the number of employees declined and ridership increased. However, it's a "poor" system in that it operates with used cars from Japan, it still uses cars from 1913, and it lacks the modern feel of other systems.

Then again, wasteful modernity might not be warranted -- especially with other people's money.

Mike Munger writes:

Gosh, folks, thanks for the great comments.

It seems you are doing pretty well without me. Let me just add two things.

1. It is entirely possible that an unregulated private bus system would be EVEN WORSE than the current TranSantiago mess. I agree with that.

2. The real meat of the example, I think, is the fact that NO ONE seems to be served by the reforms.

If you have a specific question, please feel free to email me, and I'll post the query and my answer (such as it is!) here in comments.

But, honestly, I've already had my say in the podcast. Russ and I really want to hear what you folks have to say! You are the best.....

Mike Munger

PS: One thing....Ethnic Austrian, you admit you know nothing about the situation in Santiago. Please read the comment of Ignacio, who lives there. I should note that if one of my students uses "Wikipedia" as a source, I give them a "Wiki-F" on their paper. Have a Wiki-fine day!

Ethnic Austrian writes:
PS: One thing....Ethnic Austrian, you admit you know nothing about the situation in Santiago. Please read the comment of Ignacio, who lives there. I should note that if one of my students uses "Wikipedia" as a source, I give them a "Wiki-F" on their paper. Have a Wiki-fine day!

I appreciate the comments of those who live there. Nobody has so far contested any of the fact claims of these articles. While Wikipedia is not a primary source, it is nevertheless an ad hominem fallacy (well poisoning specifically) to cast doubt about any particular fact claim just because it was mentioned on Wikipedia. If we are going down the ad hominem route, I would say that a collaborative effort of native speakers, which is referenced by 52 and 16 footnotes, is probably more objective than a second hand account by someone who clearly champions a particular political ideology.

We also have to take into account that people always complain, especially about change. Russ frequently and rightfully points out that claims about falling living standards are unsubstantiated. Austrians stubbornly believe that the switch to the Euro caused a spike in inflation, even though that clearly wasn't the case.

So we would have to look at objective numbers to evaluate the situation. Commute times and ridership numbers speak the truth. Let's see how the system develops. Note that people also complained about the old system. It got a satisfaction rating of only 11,2 points out of 100 in 2002.

The bus routes in the old system, as I understand it, had been defined by the governement as well. They didn't emerge laissez faire style. The big difference between the old and the new system seems to be that before, multiple contracts for these defined routes were issued to competing firms, whereas today, firms get exclusive rights to operate on individual routes.
Santiago residents may correct me, if I'm wrong.

On to a general subject. Fare dodging is handled by random spot checks in Vienna. A certain amount of fare dodging is accepted in this system, but this seems to be a more efficient way of doing things, much like stores expect a certain amount of customers to default on their consumer credit. I find the system in many other countries, where each and every passenger has to show his ticket to the bus driver or even buy one to be extremely bothersome. That costs minutes of commute time at each and every stop.

matty writes:

I am very much pro-capitalist but I'm not sure what to think of public transport. When I was in the UK the lack of any viable public transport (buses too infrequent and really expensive and generally poor quality and not any other options) meant I had to work or take a taxi if late, here in Frankfurt there is a tram, underground, metro train and a bus service. The quality of all is very good and for less than $100 dollars a month (approx.) I get unlimited travel quite far to the outskirts of this admittedly small city. By virtue of luck I have a tram stop 2 minutes from my appartment which drops me right outside work in 10 minutes and has a train every ten minutes. Just this in itself makes life very easy here. This system is as far I can see totally publicly owned and run. I don't know how different it would be if it were to be fully opened up but as it stands now and the level of tax I pay I am really happy with this service. I pay a similar amount of income tax as I would in the UK here but yet get more services. Perhaps this a question of how taxpayers money is spent but as someone who is usually laissez-faire I don't know how my affection for the German (Swiss, general European) public transport leaves me...

wph writes:

I really enjoyed this podcast. I'd love to see some sort of article on the changes to the Santiago system to verify some of the claims. Has anyone come across one? I don't suppose the NYT will be running a big story on this anytime soon.

Justin Bowen writes:

"People respond to incentives in all settings"

I love this podcast. I listened to this podcast yesterday and thought it funny that you thought this was profound and obvious. I found myself laughing out loud as you focused on this because it seems so obvious.

The reason that I listened to this podcast again today was because I read something interesting at a blog that I follow. When I read that article I immediately thought about that quote and found the podcast again in my iPod so that I could listen to it as I drove.

Steve writes:

Mike, you will be hearing from me soon, RE: Duke.
But I'll wait a little while for the hub-bub from this podcast to die down. (I'm currently stalking Pete Boettke)

I have to admit I'm always excited when it's the "Mike and Russ Show". It's obvious how well you two communicate, and I always feel like *I've* known you both for years. I literally laugh out loud every time.

Here's some word options for you:

Probvious. (prObe-vious)
Or my favorite, Obfound.

Vintner writes:

Here's one of many newspaper stories about private bus systems connecting San Francisco to Silicon Valley, from the NYT 10 March 2007, specifically about Google (as of a year ago):

Google’s Buses Help Its Workers Beat the Rush: http://www.nytimes.com/2007/03/10/technology/10google.html

An excerpt:

"The company now ferries about 1,200 employees to and from Google daily — nearly one-fourth of its local work force — aboard 32 shuttle buses equipped with comfortable leather seats and wireless Internet access. Bicycles are allowed on exterior racks, and dogs on forward seats, or on their owners’ laps if the buses run full.

Riders can sign up to receive alerts on their computers and cellphones when buses run late. They also get to burnish their green credentials, not just for ditching their cars, but because all Google shuttles run on biodiesel. Oh, and the shuttles are free." ...

“We are basically running a small municipal transit agency,” said Marty Lev, Google’s director of security and safety, who oversees the program.

Not that small, really. The shuttles, which carry up to 37 passengers each and display no sign suggesting they carry Googlers, have become a fixture of local freeways. They run 132 trips every day to some 40 pickup and drop-off locations in more than a dozen cities, crisscrossing six counties in the San Francisco Bay Area and logging some 4,400 miles.

They pick up workers as far away as Concord, 54 miles northeast of the Googleplex, as the company’s sprawling Mountain View headquarters are known, and Santa Cruz, 38 miles to the south. The system’s routes cover in excess of 230 miles of freeways, more than twice the extent of the region’s BART commuter train system, which has 104 miles of tracks.

Morning service starts on some routes at 5:05 a.m. — sometimes carrying those Google chefs — and the last pickup is at 10:40 a.m. Evening service runs from 3:40 p.m. to 10:05 p.m. During peak times, pickups can be as frequent as every 15 minutes.

At Google headquarters, a small team of transportation specialists monitors regional traffic patterns, maps out the residences of new hires and plots new routes — sometimes as many as 10 in a three-month period — to keep up with ever surging demand."

The San Francisco newspapers also frequently run stories on this topic, citing other employers such as Microsoft and eBay. There are other and larger buses in use beyond those mentioned in this story.

Jim Wilson writes:

I'm afraid I'm one of those people who hates neologisms where there is already a perfectly good English word. Regarding "publicize," when a municipality takes over a private organization, the proper verb should be "municipalize." I'm not aware, though of a general word for nationalize, municipalize, etc.

Regarding your parable of the broken sink, I may have a parable that could explain a little of why the new system is not abandoned. Imagine that my sink is clogged because of an old garbage disposal and to deal with it, I go out and buy a new garbage disposal. In installing the new disposal, I toss the old one in the trash. Even if that disposal causes more problems than the sink without it, assuming I can't take it back to the store, I will probably try to tough it out until the cost of using the new system is as great as the investment required in getting an even newer one.

Frederick Davies writes:

This has to be the BEST EconTalk poscast ever! I have never ever laughed and learned so much while listening to Economics. Very well done!

enronal writes:

Yes, a very entertaining podcast, even if depressing at the end. I guess we have to take a Twainian view and just appreciate anti-market idiocy for its entertainment value.

Hey Mike, why the anti-Wiki sentiment? Wikipedia focuses dispersed information pretty darn effectively. One thing that has surprised me is that Wikipedia tends to be pretty balanced, compared to, say, your average NYT or local news report.

Michael Munger writes:

Aw, perhaps I was too hard on the Wiki.

But, to me, Wikipedia is the first place you go if you don't know anything about a subject.

And you get references there. You go read them, and you find out the real story.

I admit, I have a pet peeve with a certain kind of argument:

1. Person asserts, "I know nothing about this."
2. Person goes on to prove it.

Heck, I would have stipulated their incapacity to make useful comments at stage 1! No proof is required.

It is true, though, that I tell students that a Wikipedia citation, as a primary source, is an automatic F. Otherwise, that's the only source they would use!

For Jim Wilson: there are more than 25 large municipalities that are ecompassed by the Transantiago "service." No one municipalized anything; no one city took over the service. A public service, called Transantiago, took over the busses, and private busses were outlawed.

So, I stand by "publicize."

George Ulrick writes:

Love your pod casts, keep it up.

Another story of well intended leaders having unintended consequences,
Back in 1986 I can personally remember a bus that went by the restaurant I worked in every day with 2 or 3 people on it is all. I inherently knew that that was not enough customers to pay the fuel use of the bus let alone the driver and wondered why the bus kept coming. Apparently it used to be a profitable route but rider ship had gone down over the years and finally the owners of the company decided to cut the route. But unfortunately for some reason or another they had to get the blessing of some regulatory agency in Nebraska. They were denied permission to drop the unprofitable routes. One of the reasons I remember being sighted was they did not want the drivers to be unemployed. So what did the bus company do? Drop all routes in Nebraska. End result more unemployed drivers and more inconvenienced riders.

As to the subject as to why some leaders continue to do things well after the fact that it was a bad idea. In many cases it comes down to ego. I work with small 3 man companies all the way up to international in size. One thing I have learned over the years is that the higher one is up in an organization the grater the potential for a large ego and the arrogance to go with it. Not that all at the top have that problem but the top of a large organization has a harder time inhibiting it, if not attracting it altogether.

Also, one of the hardest things for anyone to do is admit failure. The difference between the private and public sector is a private company will eventually run out of money if the situation is not turned around. This rule does not exist with public entities. Because of this most public entities tend to be less creative in approaches to the point of not seeing what is obvious to everybody else. Case in point the article Regulation of grass roots transit planned (http://query.nytimes.com/gst/fullpage.html?res=9E0CE0D7123FF934A25754C0A964958260) talks about a bus system that is lacking in capacity. But instead of improving service, let’s crack down on those that do.

Schepp writes:

Russ and Mike are always good. Thank your both.

Since Dr. Munger question the wiki reference, I will challenge it somewhat? The question is: Is it Dr. Munger or Mike. A wiki reference is very informal but this is suposed to be an informal discussion. I also note Russ's point when he asked Dr. Munger if he road the bus. Dr. Munger did not provide sources or references.

I think Dr. Munger was right or very close on how it worked, but I think that their are other sides of the story. Indeed his assumption that there were not well defined benifiaries for the new $600,000,000 deficit system. Where there is excess cash there are incentives. A point that Mike and Russ both made extremely well in the podcast.

Richard writes:

George Ulrick,

Relating to some of your comments about larger organisations, it is interesting to repose the (general) question of decision-making and who should make decisions (either many small private entities or a single centralised thinker).

I work in a large (~10,000 people) organisation. A bus service was set up between the 2 major sites. Let me be more specific. Somebody, some where said "there's all these people hiring cars at a cost of x, why don't we offer a bus service at a price less than x?".

Reasonable question. Poor answer. A pseudo-market was established to pay for the bus. Pseudo, because there was only 1 supplier and no other entrants were allowed. Indeed decision-making was poorly incentivised as 'the company' neither accurately measured the costs and income of the service, nor was any individual really able to reap a profit directly.

So "somebody" set a price. There was no market to set the right price and, guess what, the service no longer exists. People use cars.

My piont is merely that sometimes a 'pseudo' market is worse than a 'free' service (as described by some of the examples above - Vintner). The 'apparent demand' became zero to our company.

Perhaps this merely higlights how poorly our company decided to set up this system. A larger competitor continues to run an aircraft service between 2 major sites. I do not know how funds for this are directed (or if individuals using the service perceive it as 'free').

Perhaps for small numbers in niche markets it is too hard to calculate demand, how prices will affect this demand, how revenue might vary etc. However, where revenues are higher there is more income to pay for this cost of calculating routes, costs, best prices etc.

Allowing hundreds of competitors to compete in this way with all of there tenticles and streetwise experience of all the routes will always beat the central planner with a map and too many simplifying assumptions (whether the planner is in a larger municipal government or an equally bureaucratic private conglomerate).

The market for buses is an excellent example of dynamic debate about what services should be offered and what the price should be. Just becuase a planner sees the same map as a private company does not mean he has access to the same information. Theoreticians might be smarter in principle, but hundreds of less astute minds with immediate experience and the ability to respond real time to passenger demands are hard to beat. They might care more about the outcomes too - they are likely to be more accountable.

George Ulrick writes:

Richard,

My apologies, I realize I may have made it sound like all large companies have problem children at the wheel. I know personally of many that this is not the case.

Another factor is the larger the aria of governance of a leader the less he will know of a particular small neighborhood, and the less time he has to find out. I believe this is the principal you speak of. I agree.

I was more speaking to the point of what is done after a bad decision has been made. We all make bad decisions small or large even in our own lives. But the larger the organization the more layers between the cause and the effect. Because the chain is longer it takes more time to get the information to the person that has the authority to fix it. Also, compounding the problem is the fact that nobody wants to tell the boss the bad news so most will at least try to couch it in the best light possible. The combination can cause even a good authority figure to make bad decisions. What if you have an authority figure that does not take bad news well? That just makes the problem of him (or his boss) discovering the problem worse. One of capitalism’s methods of getting rid of problem children is private companies can run out of money. This means the problem can only get so bad before it stops. While thru history governments do come and go, this is a much rarer event. That means less incentive for those at the top to look for problems. That will affect the learning curve.

Jon writes:

A few articles from the Economist, from February and April '07 and another from Feb '08 seem to corroborate the things Mike claimed:

Feb '07
...But most santiaguiños, especially poorer ones, still rely on private bus services, whose chaotic mesh of routes has grown, barely planned, over decades.
On paper, re-organising the bus service from scratch seemed like a good idea. A radical plan to do so, called Transantiago, was first proposed by the previous government in 2002. It involves replacing the dilapidated buses and anarchic routes with a fleet of articulated buses plying main arteries, linked to local feeder services. The advantages seemed clear: fewer buses clogging the roads, less pollution and safer transport without any increase in fares. But when the new system came into force on February 10th, the result was chaos.
The old buses were frequent and stopped everywhere. Now a typical journey involves several changes. An abysmal information campaign featured a route map of infinite complexity. But the main complaint this week as queues of would-be passengers spilled into the road was of not enough buses, even though February is a holiday month. On one evening, stranded passengers commandeered two buses going in a different direction to take them home.

April '07
...the immediate cause of Ms. Bachelet’s troubles is a costly new integrated subway and bus system that was supposed to be one of the most modern in the world.
Instead, commuters here in the capital region, which is home to more than one-third of Chile’s 16 million people, are wasting hours every day getting to work and back home. Rather than symbolizing Chile’s prosperity and progress, the new Transantiago plan has instead come to represent official ineptness...

Feb '08
...The new scheme was the most ambitious transport reform ever tried by a developing country, says Darío Hidalgo of the World Resources Institute, a think-tank in Washington, DC. It involved some 200km (125 miles) of dedicated bus lanes, and the wholesale reorganisation of bus routes to integrate them with the city's metro. But Transantiago has become a model of how not to reform public transport. It brought misery for commuters: more changes to complete typical journeys, long queues for full buses and gross overcrowding of the metro.
A new transport minister, René Cortázar, has gradually ordered the chaos. He negotiated contract changes with private bus firms; there are now more buses, more flexible bus routes and less congestion on the metro. The pre-paid smart card works, though not yet the satellite technology to control bus movements. Officials now recognise that Transantiago, which was designed to be self-financing, will need a long-term subsidy of up to $40m a month.
The chaos was all the more shocking to Chileans because they like to think of their country as the best-organised in Latin America. Officials admit that planners and politicians made big mistakes. These included President Bachelet's decision to launch the system when almost none of the bus lanes and the technology was ready. Other cities, such as Bogotá, Colombia's capital, have adopted similar rapid-transit systems based on bus lanes, but have done so piecemeal, allowing glitches to be fixed quickly. And in Santiago, the planners imposed arbitrary routes that took little account of passengers' habits.

So, from a non-wiki, news magazine source, (although I'm sure you could argue that The Economist is "someone who clearly champions a particular political ideology") we have corroboration for Mike's claims that:

-the old bus route transport system was basically an emergent phenomenon
-riders now require more transfers to get to their destinations
-planners imposed arbitrary routes that had nothing to do with what was desired by the end users
-more riders were funnelled into the money-losing Metro

However, contrary to Mike's claim of a $600m annual subsidy requirement, the Economist claims it will be a mere $480m annually. I'm sure that the citizens of Santiago are relieved.

Mike Munger writes:

Ah, Jon: The difference in $480m and $600m can be at least partly explained by the change in exchange rate between Feb 08 and June 08. The dollar went down the toidy.

Mike Munger writes:

From an email, received today:

I enjoyed listening to your piece on Public Transport in Chile on Econtalk.

I thought you'd like to know that public transport in Tokyo is almost totally private these days, and is massively redundant. There's 2
subway systems: a government run one, and a much larger private system, plus a privatized overhead rail system (like Chicago), light rail, trams, buses, and as far as I know all the numerous suburban and inter city lines are all private.

It's a real shame that Japan doesn't feature in more economics discussions as it has numerous unique examples of a market based system (most health care is private etc.)

james writes:

I was wondering if anyone could explain why Russ is always down on light rail. I'm just wondering what it is that makes it such a bad idea.

Isaac Crawford writes:

I have always been puzzled by the mass transit system in Yemen. The primary way of getting around town is on "dabobs," mini vans that hold 7 passengers. There are zillions of them around and they cause a lot of congestion and accidents. I could never get a straight answer as to whether or not it was a private system. In some ways it seemed like it, you could hire individual ones to take you on special routes or for groups. The drivers go to great lengths to maximize ridership, and each one is highly individualized with upholstery and other trappings to suit the fancy of the driver. On the other hand, there are only 4 routes that these things use. It was a remarkable combination of being inconvenient and dangerous...

I wonder if some of the problems in Chile that have been highlighted could be solved by going back to the drivers getting paid by the number of riders. How do you think that would change things?


Isaac Crawford
Blogging in Yemen
www.isaharr.com

Schepp writes:

James,

See this link to the Cato Institute. It focuses on planning in general but discusses the reasons transit systems focus on higher capital investment.

http://www.cato.org/pub_display.php?pub_id=9420. My thanks to the Reason Foundation for citing this reference in there Transportation E-newsletter.

The issue with light rail is the cost per passenger mile when accounting for both operating cost and annualizing the capital costs in general are much higher than Deisel Bus costs . There are also the issues like in freight where the last 5 miles of the shipment is most expensive. The last mile can be very expensive on light rail as you try to move away from the corridor. Light rail limits the choices because you may only go where the transporation takes you.

There are folk like at the Victoria Transportation Policy Institute with Todd Litmann and Robert Bertini at Portland State University that would argue that the externalities change that mix.

The externality arguments are very theorectical with very few imperical studies to justify the costs assignment especially looking for the unseen benifits that commuters see from the transportation choices that they make.

I would suggest that the Cato and Reason foundation somewhat overstate there case when they only look at Cost per mile. I would suggest the more general measure of People, employment and retail within $5 travel expenditure (both monetary and internalized costs)is more appropriate measure of travel efficency.

Mike Munger writes:

James: Schepp's answer is a fair one, and highlights both the issues and a caveat.

The average cost per passenger mile of light rail is so high that there is no question that it would be cheaper to give vouchers for private taxis. A LOT cheaper.

The question is how to value the externality. Ridership is low enough on many light rail systems (Charlotte, here in North Carolina is a good example) that the externality is negligible, and light rail really is very wasteful. But it could be useful, in a city with lots of congestion and high density.

Basically, Schepp has it entirely right, and I have nothing to add. Great answer, Schepp. Well played.

IC: I don't know anything about the Yemeni system. It sounds interesting, and idiosyncratic.

In Chile, I don't think you could go back to a "pay per passenger" system. It is too much like privatization. But, it would solve SOME of the problem.

Two problems would remain, though:

1. The buses are too big, and too difficult to get through rush hour traffic. They clog up the streets, and create terrible congestion.

2. The routes are a disaster. The attempt to focus on Metro stops, and not parallel routes, are to me the single worst feature of the new system.

Schepp writes:

Mike Munger,

Thank you for the compliment. I look forward to you taking me to task in the future when I don't have it quite right. I have learned a lot from you and Russ and appreciate both of your work.

Just for grins consider if there are ways to evaluated congestion externalities as completely internalized costs and the externality of the pigovian tax. I hypothesize that it does not matter if you are not aware of the congestion you cause others, if the congestion others cause you is generally speaking equal to the cost you cause them. The incentives work out that while you don't account for externalities you cause others, you are readily aware of the externalities others cause you and your actions consider the incentives of avoiding those costs.

The pigovian tax clearly benifits the somebody collecting the p. tax and they now have an incentive to allow the continued problematic behavior for their profit. When looking at the supply and demand the pigovian tax on congestion can further skew the market if not all the externalites both positive and negative are under consideration.

Mike Munger writes:

Schepp: I think there is a problem with the revenue from Pigovian taxes, that's true. The point of Pigovian taxes is to get incentives right, AT THE MARGIN. The use of funds for some "good" purpose may distort things, however, even if it seems like a shame just to burn the money.

And, yes, the incentive to perpetuate the behavior makes the tax authority more like a farmer than a regulator. Certainly, the states have strong incentives in the U.S. to make sure people keep smoking, so the states can continue to collect that revenue.

I'm not so sure the incentives work out in a common pool resource allocation problem, though. When I used to drive with my mom sometimes, she would say (if we hit a traffic jam), "Where are all these people going? Why don't they just get out of our way?" Sure, she was aware of the effect of others on us. But she would have opposed a time-based tax that incentivized people to drive off-peak. She considered driving a "right;" it's just that other people should get out of her way.

Finally, a cool quote. For extra credit, guess the author:

It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest.


Stigler?


Buchanan / Tullock?


Coase?


Mises?


Hayek?

Look, I got it wrong, too. That’s why I’m asking. The author is A. C. Pigou (1920; p. 296; cited in Tim Besley, 2006, p. 26).

So, Pigou wasn't sure about that problem, either.

Pablo writes:

I found this link via kfarr.com.

I am from Argentina, and lived for many years in Santiago. Munger's description of the past and present state of transit in Santiago is inaccurate.

Private buses refused to service poor areas effectively. Drivers would wait at certain stops for long periods for more riders - backing up traffic. (And then, to make up the time lost, they would skip stops that didn't have many people waiting.) Many of the companies did not do the job they were contracted to do with the city.

The old system was crippling the entire metro-area. In the end, it was cheaper and more effective for the city to step in and take control.

The city’s take over of public transit was a popular move. However, the system is still struggling with the switch-over.

Thor Kristiansen writes:

I live in Copenhagen (capital of Denmark). In Copenhagen public transportation has been privatized for the same reasons as those "marketed" in this podcast. In spite of that it is a total mess so I do not know whether that market forces really the holy grail, at least not in the short run (and in the long run we are all dead anyhow). However I agree that top-down planning does not function.

Jonathan writes:

A very interesting discussion. I just got back from Ethiopia which has a privatized and public bus system, but all the private buses are standard sizes and colours. So there is no real way to tell them apart besides the drivers, the system works great and allows you to move around the city with great ease and at a very low cost.

Inter-city buses are either private or public. Of course, the private ones are faster and more expensive, but both work in relative harmony. Often they compliment each other, the public buses doing routes that are necessary but not easy to do, while the private buses do the easy (and profitable) routes. Keep up the interesting discussions.

A great podcast, two small errors though. Russ said that a family of four would be paying 2400$ a year in 'fees' - it is actually 400$ (100 X 4). And Mike said santiago was a 200 000 person city with 4.8 million in the adjoining towns, but said earlier that santiago was a city of 6 million.

Schepp writes:

Mike Munger,

My guess was Hayek or Mises before I saw the your researched answer. Very interesting response in total. Thank you.

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