Thursday, July 5, 2012

Economics that saves lives (by Francesc Trillas)

I attended two days ago a presentation in Barcelona by Chilean economist Andrés Gómez-Lobo, on the ups and downs of the Transantiago reform in Chile. This reform was meant to improve the public transportation system in Santiago, but dramatically failed for a number of reasons. In the old system, small buses in an informal system dangerously competed in the streets for passengers (at the cost of an amazing ratio of fatal accidents and injuries). The new system wanted to introduce overnight a new “main routes” system, with tariff integration, more modern vehicles and people changing vehicle and mode for one same trip. But lack of preparation implied very long waiting times and heavy congestion, causing an enormous social and political crisis in 2007. Andrés uses applications of welfare economics to public transportation, plus common sense, to explain how the technocrats (who designed the reform without checks and balances) failed to grasp the subtleties of the ordinary people’s demand for public transportation. He has two lessons for future reforms: don’t play games with the need of ordinary people for urban public transportation, and be humble if you have a policy reform to propose and implement. Andrés and others worked in reforming the reform and now Santiago has a system that is better than the old and that has at least partially learned from the mistakes of the Transantiago.
This work is in the best tradition of policy papers based on simple welfare economics. The main things to be learned are in the new book by Joaquim Silvestre, Public Microeconomics.  This type of work is in the best tradition of “left-wing” neo-classical economists like Kenneth Arrow, who back in 1963 set the standards high in his paper on why health care should not be left to market forces.

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