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 Singaporesppwuxun@nus.edu.sgsppwuxun@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