STEPS IN ASSESSING MARKET FAILURE[5]
The following points numbered 1-8 correspond to guidelines proposed by Michael Mintrom in his forthcoming book Contemporary Policy Analysis. You can view them here.
1. The market that we are interested in here is road transport in auckland, with a focus on public transport concerning buses and bus lanes. Here, the good or service of interest is public transport buses.
2. The general public or motorists are consumers in this market. As road users, they are subject to bus lane measures and expected to comply with regulations. Bus lane regulations are enforced by the Auckland City Council, who are also the producers in this situation. Thus, as local government, the Council has power to create and enforce road rules.
3. Ideally, according to the market model[6], the Auckland City Council’s supply of bus services should be able to meet the demands of patrons. If this takes place, the market supply and market demand for public transport buses should meet at a point of equilibrium or economic efficiency, illustrated by the following Figure 1.0.
Figure 1.0 An Efficient Market for Public Bus Transportation
However, there has not yet been a proper example of how the market model can work efficiently in the area of public transport buses. In the past, production of reliable public transport has struggled to meet the demand for it. Of late, however, slow, yet marginal increases have been made. For example, in 2007, the use of public buses rose by 1.2 percent which is an improvement in contrast to declining figures reported in the previous three years.[7]
4. In the context of public bus transportation and bus lanes, market failures occur on a number of levels according to the six basic assumptions of the market model[8], two in particular relate directly to bus lane regulations. Firstly, we are interested in information asymetries[9] between motorists and the Auckland City Council regarding bus lane rules and enforcement measures. Secondly, we are concerned with negative externalities that accompany bus lanes by virtue of their function as public goods[10], meaning that any adverse side-effects are likely to reach those who are not directly related to the initial problem, e.g., bus users as well as motorists, etc.
5. The demand for public transport has always existed, however, past studies have shown that the lack of reliable public transport has stuggled to meet and maintain that demand.[11] Therefore, in its bid to support and encourage public transport, the Auckland City Council set in place bus priority measures,[12] such as bus lanes. These bus lane regulations in particular have caused tension between motorists and the Council. However, in their attempt to promote public transport through bus lanes, the Council has not properly considered the impacts on motorists or non-users of public transport yet according to the market model supply and demand should function mutually. Affected motorist have responded to this aggressively and therefore the market for public bus tranportation becomes less effective. Consumers in this situation are not being looked after and so their demand or appreciation of public bus transport shifts negatively.
6. Financial implications of this market failure may include the cost of a decrease in the use of public transport buses. This cost extends beyond loss of revenue from patron sales because less users of public tranport mean that roads will again become more congested and such physical constraints can make a number of business less productive from a logistical perspective. There is also a financial impact on motorists or consumers themselves in terms of higher personal expenses involved in not using pubic transport, i.e., fuel expenses.
7. The Auckland City Council has committed to a review of their current bus policies to see if conflicting areas can be made more acceptable. The Council is currently trialling new measures that are more considerate of all road users, e.g., trial of 50 metre markers.
8. Although market failure should be determined by market processes themselves, the market failure descrbed above is centred on the actions of the supplier in this market, i.e., the Auckland City Council. The market failure in this context, therefore, is essentially due to a few inaccurate policy actions, hence market failures can be addressed here by simply augmenting policy actions that did not work previously. This may include information campaigns to address information asymetries, etc.