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No Free Lunch

It’s all about incentives

My daughter had to walk through drenching rain with her husband to get home last Saturday night. There’s no public mass transport where they were. Taxis consistently refused them, she said, after also refusing several other passengers before them. Until recently, she and her husband lived overseas, where they depended on buses, subways and ride-sharing apps like Lyft, Juno and Uber for mobility. The last could have been their recourse last weekend, but that option was taken away with Uber’s recent suspension, and they had no access to Grab or other similar services. I could only commiserate with her as she let out an earful against the Land Transportation Franchising and Regulatory Board (LTFRB) that imposed the Uber suspension. My last piece, after all, was on the very subject.

My daughter is no stranger to our city transport scene. Until she married someone from abroad, she had been working and living in Metro Manila. She had seen and experienced firsthand how taking public transport in Metro Manila could be a risk to one’s life and limb. There was the time she phoned me hysterically after getting off a hair-raising ride in an Edsa bus whose driver, she said, drove like a daredevil even as her fellow passengers were pleading for him to slow down. “How can they get away with risking their passengers’ lives like that?” she asked me then. She would also rant constantly about how dehumanizing her rush hour rides in the Edsa MRT were, and claimed that the all-women coaches were even worse as they seemed to bring out the worst in her fellow women in fighting for space.

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Then there was her close friend who nearly became another taxi rape victim. She had hailed a taxi late at night, and as it entered her neighborhood, the driver pulled over and then forced himself on her in the back seat. She managed to fight him off, screaming at the top of her lungs to alert the neighbors, which led him to speed away. The driver never showed up at his employers’ again, and the taxi was later found abandoned.

In the Philippines, choosy taxi drivers’ behavior is not at all surprising, just as that of reckless bus drivers is perfectly explainable. It’s bad enough that rules and laws are hardly ever enforced, in a country where we joke that laws and rules are mere suggestions (whatever happened to the LTFRB’s “Oplan Isnabero,” which supposedly prohibits taxi drivers from refusing passengers on the basis of destination?). In the end, it’s all about the incentive system, and specifically, the way commercial drivers get their pay.

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Taxi drivers seem to shun short riders and prefer passengers going on longer rides because they expect to earn more in the process. The age-old “boundary” system — where the vehicle owner gets a guaranteed minimum amount (essentially a rental for the vehicle, be it a taxi, jeepney, or tricycle), while the driver gets what he makes on top of it — leads them to act that way. Bus drivers race with one another because their income for the day hinges on how many passengers they get, and how many trips they make. One might argue that it impels productivity and pushes drivers to bring in as much revenues as they can, but in the process, fairness and passenger safety get thrown out of the window. Many have long called for a change in the system so that drivers get fixed salaries in combination with a productivity incentive mechanism. But operators fight this tooth and nail because they’d rather not share market risk, which falls mainly on the poor drivers.

In contrast, Uber and the like have a built-in incentive system for good behavior. The online system lets passengers enter a rating for their drivers, and drivers to do the same with passengers as well. Badly rated drivers will not attract customers, just as badly behaving passengers will find difficulty getting willing drivers. It is a win-win approach that makes everyone better off. And it’s all built on having the right incentives.

Where regulators can’t enforce rules, they should be looking at the incentive systems. After all, carrots, as they say, work better than sticks — especially when they are unable (or unwilling?) to use the latter.

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TAGS: Cielito F. Habito, incentives, LTFRB, No Free Lunch, ride-sharing apps, TNCs, transportation network companies, Uber
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