Tuesday, August 31, 2010

Fare Dodgers!

This one is pretty creative. A group of people in Paris are trying to institutionalize the age-old practice of fare dodging (once the exclusive preserve of students ...).


Under the guise of a very specious argument that public transport ought to be a pure public good (i.e. the state should provide this for free), they are promoting the idea of dodging fares on the Paris metro. They even have an 'insurance fund' in place as a risk pooling mechanism. I wonder if the ever-enterprising Mumbai local train commuters figured this model out ...

To begin with, public transport is clearly not a public good - given the simple fact that there is always a shortage of availability of good public transport in any city (and certainly a city of the size of Paris), there needs to exist a price mechanism to ensure that the demand is controlled to align with the supply. Which itself may sound paradoxical, given that one of the goals of public transport is to offer a low-cost alternative to people. So long as the cost of public transport is lower than any other means of private transport at the margin, it will always remain the more effective mode of transport. And once you add up all the other negative externalities that transportation creates (pollution, global warming, oil dependency et al), public transport wins hands down as a public utility.

Giving it away for free will create an administrative headache of managing the demand, which will almost certainly outstrip supply -hence the need for a price mechanism. And so, if there is a city where the supply of transport far exceeds the demand, there may be a case for the state to subsidize a large part (if not the complete) cost of public transport.

Wednesday, August 4, 2010

How much is a tiger worth?

Went to Kabini (Nagarhole National Park in South Karnataka) last week. This National Park is one of the largest tiger sanctuaries in India. And given the ongoing "Save the Tiger" campaign, there was naturally a lot of talk about this among the visitors to the Park. Everyone felt that we must do 'everything that it takes' to ensure that we don't wipe out the species.
Which got me wondering - how much should we (as a country) be spending on this exercise? In other words, how much is a tiger worth? The rational economist would first try to put a number on a tiger's worth and then multiply it by the desired increase in the tiger population - and if the cost of doing this is less than this value, then it is a worthwhile investment.
Makes sense - but leads to an obvious question: how do you go about measuring a tiger's worth? Now extending this argument - how do you measure anything that cannot have a market (say, a beautiful scenery, a sunset etc)? This is, by the way, not merely an academic question: it has practical implications. For instance - if a mining company wanted to dig up a hillside, how much should they be made to compensate for the loss in quality of life for everyone who would otherwise enjoy the view? Similarly, in a developing country like ours which is resource constrained, any expenditure on 'Save the Tiger' campaign is money taken away from some other deserving social programs.
After some trawling on the internet, it emerged that there is an obscure area in economics which deals with these exact situations and it goes by the name of "Contingent Valuation". Some interesting leads:

One thing that is obvious as you read through this is that this can be highly subjective - perhaps naturally (!) since there is a huge sphere of human activity that is beyond the confines of the domain of revealed preferences (i.e. where a need or want is expressed through the price mechanism) and in the domain of stated preferences - which is why we take pleasure in watching a beautiful sunset or the lush green countryside but abhor the idea of putting a price to these experiences. Talking of such experiences - try the train ride on the Bangalore-Mangalore route. This has recently been upgraded to a broad gauge and the stretch between Sakleshpur and Subrahmanya Road through the Western Ghats is breathtaking (esp. in the monsoons). I am pretty sure that in pure economic terms, this is an investment that the Railways will never recover - but then the ride itself is, well, worth it!