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Policy Innovations in Singapore Wu Xun Lee Kuan Yew School of Public Policy National University of Singapore [email protected]. Traffic Congestion. Beijing. Moscow. Los Angeles. Delhi. Market Failures, Government Interventions and Government Failures. Welfare Economics. - PowerPoint PPT Presentation
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Policy Innovations in SingaporePolicy Innovations in Singapore
Wu XunWu XunLee Kuan Yew School of Public PolicyLee Kuan Yew School of Public Policy
National University of SingaporeNational University of [email protected]@nus.edu.sg
Traffic Congestion
2
Beijing Moscow
Delhi Los Angeles
Market Failures, Government Interventions and Government Failures
Welfare Economics Public Choice Theory
Government Failures, Market Mechanisms and Market Failures
New Public Management Welfare Economics
A Vicious Cycle?
Market Failures
Government Failures
Government Interventions
Market Mechanisms
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)
Strengths of Market and Government
• 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
Strengths of Market Strengths of Government
Policy Innovations
Market Imperfections
Government Imperfections
Government Interventions
Market Mechanisms
Policy Mixes
Strengths of Market Strengths of Government
Land Transport
Health Care
Housing
Education
Policy Innovations in Singapore
Typical Market Imperfections in Land Transport
• Loss of efficiency due to Externalities
Market Imperfections
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?
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
The Use of ADF (Additional Registration Fee)
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
The Use of ALS (Area Licensing Scheme)
Typical Market Imperfections in Land Transport
• Inadequate information
• Lock-in and rigidity• Administrative
costs• Strategic response
• Loss of efficiency due to Externalities
Government Imperfections
Market Imperfections
How to take advantage of strengths of both market and government?
ADF
ALS
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)
Policy Instruments Introduced after1990
Additional Cost of Car Ownership in Singapore: ARF plus COE
Determination of COE: Market Conditions (including the Number of Quota)
Car Ownership in Selected Countries
Electronic Road Pricing (ERP)
Map of ERP System
ERP
Monday to Friday
CTE between Ang Mo Kio Ave 1 and Braddell Road
ECP after Tanjong Rhu Flyover
ECP from Ophir Road
KPE slip road into westbound ECP
PIE after Kallang Bahru exit
PIE eastbound after Adam Road and Mount Pleasant slip road into the eastbound PIE
PIE slip road into CTE
7.00am - 7.05am $0.50 $0.00 $0.00 $0.00 $0.00 $0.00 $0.007.05am - 7.25am $1.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.007.25am - 7.30am $1.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.007.30am - 7.35am $1.80 $0.80 $0.00 $0.80 $0.50 $0.50 $1.807.35am - 7.55am $2.50 $1.50 $0.00 $1.50 $0.50 $0.50 $3.507.55am - 8.00am $2.50 $1.50 $0.00 $1.50 $0.50 $0.50 $3.508.00am - 8.05am $2.50 $2.00 $0.50 $2.00 $1.00 $1.00 $3.508.05am - 8.25am $2.50 $2.50 $0.50 $2.50 $1.00 $1.00 $3.508.25am - 8.30am $2.50 $2.50 $0.50 $2.50 $1.00 $1.00 $3.508.30am - 8.35am $2.50 $2.50 $0.50 $2.50 $1.50 $1.50 $4.308.35am - 8.55am $2.50 $2.50 $0.50 $2.50 $1.50 $1.50 $5.008.55am - 9.00am $1.50 $1.80 $0.50 $1.80 $1.00 $0.80 $3.009.00am - 9.05am $0.50 $1.00 $0.00 $1.00 $0.50 $0.00 $1.009.05am - 9.25am $0.50 $1.00 $0.00 $1.00 $0.50 $0.00 $1.009.25am - 9.30am $0.50 $0.50 $0.00 $0.50 $0.50 $0.00 $0.509.30am - 9.35am $0.509.35am - 9.55am $0.509.55am - 10.00am $0.5010.00am - 10.05am $0.5010.05am - 10.25am $0.5010.25am - 10.30am $0.5010.30am - 10.35am $0.5010.35am - 10.55am $0.5010.55am - 11.00am $0.50
Determination of ERP Rates
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
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.”
Policy Innovations in Land Transport
• Inadequate information• Lock-in and rigidity• Administrative costs• Strategic response
• Loss of efficiency due to Externalities
• Lack of mechanism to pursue social goals other than efficiency
Government Imperfections
Market Imperfections
• Sensitive to fluctuations in demand and supply
• Fast responses to changes in the environment
• Fast attainment of goals due to the use of coercive power of the state
• Pursuit of social goals other than efficiency
Policy Mix:
Auction System for COE VQSERP Low Threshold Speeds
Rapid development of Public transport system
Typical Path of Policy Reform in Health Care
• Inefficiency of government owned health care facilities
• Regulatory capture• “buffet” syndrome• Inadequate
information• Financial
sustainability
Government Imperfections
Health care as the responsibility of the government
Health System with Public Financing and Public Provision
Market 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
Market-Oriented reforms such as user charge, privatization, contract out
Policy Innovations in Health CareGovernment
ImperfectionsMarket
Imperfections
Strengths of Government
Strengths of Market
Public ownership of majority of hospitals MedisaveMediShield Freedom to choose hospital bed
classMedifund Market competition for out-patient
careGovernment Subsides for hospital care Clustering of public owned hospitals
and health care facilitiesTransparency of hospital bills
• Inefficiency of government owned health care facilities
• Regulatory capture• “buffet” syndrome• Inadequate information• Lock-in and rigidity• Financial sustainability
• Loss of economic efficiency due to classical market failures
• Market power• Lack of mechanism in
pursuing social goals other than economic efficiency
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.
Conclusions
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?
Future Research Questions