Planned public transportation in Santiago

Felix Salmon publishes a post relating to Santiago's failed attempt to convert a free-er, competition-based public transportation system into a more "planned" and highly regulated one. He relates an email exchange he had with Austan Goolsbee, now Barack Obama's economics advisor, where Mr. Goolsbee argued:
Are you under the impression that replacing competing companies with a few giant firms and then removing all incentives to the drivers is a good idea? It is a recipe for monopolization. Prices will rise and delays will get worse.
And, indeed:
Almost overnight, the new "planned" system cut mass transit ridership, increased congestion everywhere in the city, and tripled average commute times from forty minutes to two hours. As President Michelle Bachelet later said in a speech, "It is not common for a president to stand before the nation and say 'Things haven't gone well.... But that is exactly what I want to say in the case of Transantiago.... The inhabitants of Santiago, especially the poorest, deserve an apology."

The roll-out was not a total disaster, however. The new planned system did solve one of the major problems it had targeted: profits were eliminated overnight. Where the old system had made $60 million a year, the new planned system immediately began to lose, and has continued to lose, more than $600 million per year.
Michael Munger's article, which contains the above excerpt, is well worth a read, and discusses a few possible measures that would fix the previous competition-based system (which had problems such as aggressive drivers, polluting buses), while steering clear of the highly regulated, "planned" solution, which turned out to be much, much worse.

The way I see it, successful social interventions tend to be based on smartly reconfiguring the system of incentives and property rights so as to produce a favorable outcome. Systems generally work if they produce a favorable outcome when everyone acts out of their self-interest. On the other hand, systems whose design ignores people's self-interest, and the behavior stemming from the incentives they create, generally backfire disastrously.


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