Financial and moral incentives for train operators

Probably many people are familiar with the Israeli day-care centre experiment by Uri Gneezy and Aldo Rustichin – largely due to its appearance in Levitt and Dubner’s largely popular book, Freakonomics. The rough idea of the experiment is to examine what happens when a financial penalty is introduced on parents who are late in collecting their children from a day-care centre. The – somewhat unexpected – main finding was that even more parents were late as a result. The intuition goes along the lines that once moral incentives are replaced by financial ones, parents started viewing the penalty as a price for being late. Once a price is tagged on being late, parents are relatively less driven by moral incentives and if the price of being late is low enough then they will choose to pay for it and be late. Of course – the authors agree – if the price is high enough it would be sufficient to deter late arrivals.

I often wonder if this experiment worked if we turned things around and applied it to businesses rather than individuals. An obvious candidate for this thought experiment would be UK train services. The fact that train operators offer a refund/compensation for cancelled or delayed services is widely known. It is also known that train service in Britain is not the epitome of punctuality – around 10% of trains on average are late. Yet, there is a large number of people that do not claim any such compensation for late train services in the UK (Moneywise estimates 75% of all affected passengers do not make compensation claims).

Of course there is the obvious question: would there be less delay if more people claimed compensation (i.e. if it cost more to be late)? Seeing that there is a large variation of delay levels across train operators this question could be answered if one knew the level of compensation claims across these operators.

More interestingly though, could the day-care centre experiment be used as a reverse analogy to examine train operators behaviour? Is it possible that train delays are so frequent because companies know that they can offer compensation to passengers (i.e. the moral incentive is replaced by a financial incentive)? What would happen if we removed the financial incentive? Would it be replaced by a moral one (just like in the case of parents and the day-care centre)? It would make an interesting natural experiment if one could compare delay and compensation statistics before and after financial incentives (compensation) were introduced in passenger train services.

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