Buses that run on time.

The search for better economic policy.
March 16 2006 12:04 PM

Where the Buses Run on Time

The lure of incentive pay.

A bus in Chile 
Click image to expand.
A bus in Chile

On a summer afternoon, the drive home from the University of Chicago to the north side of the city must be one of the most beautiful commutes in the world. On the left on Lake Shore Drive you pass Grant Park, some of the world's first skyscrapers, and the Sears Tower. On the right is the intense blue of Lake Michigan. But for all the beauty, the traffic can be hell. So, if you drive the route every day, you learn the shortcuts. You know that if it backs up from the Buckingham Fountain all the way to McCormick Place, you're better off taking the surface streets and getting back onto Lake Shore Drive a few miles north.

A lot of buses, however, wait in the traffic jams. I have always wondered about that: Why don't the bus drivers use the shortcuts? Surely they know about them—they drive the same route every day, and they probably avoid the traffic when they drive their own cars. Buses don't stop on Lake Shore Drive, so they wouldn't strand anyone by detouring around the congestion. And when buses get delayed in heavy traffic, it wreaks havoc on the scheduled service. Instead of arriving once every 10 minutes, three buses come in at the same time after half an hour. That sort of bunching is the least efficient way to run a public transportation system. So, why not take the surface streets if that would keep the schedule properly spaced and on time?

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You might think at first that the problem is that the drivers aren't paid enough to strategize. But Chicago bus drivers are the seventh-highest paid in the nation; full-timers earned more than $23 an hour, according to a November 2004 survey. The problem may have to do not with how much they are paid, but how they are paid. At least, that's the implication of a new study of Chilean bus drivers by Ryan Johnson and David Reiley of the University of Arizona and Juan Carlos Muñoz of Pontificia Universidad Católica de Chile.

Companies in Chile pay bus drivers one of two ways: either by the hour or by the passenger. Paying by the passenger leads to significantly shorter delays. Give them incentives, and drivers start acting like regular people do. They take shortcuts when the traffic is bad. They take shorter meal breaks and bathroom breaks. They want to get on the road and pick up more passengers as quickly as they can. In short, their productivity increases.

They also create new markets. At the bus stops in Chile, people known as sapos (frogs) literally hop on and off the buses that arrive, gathering information on how many people are traveling and telling the driver how many people were on the previous bus and how many minutes ago it sat at the station. Drivers pay the sapos for the information because it helps them improve their performance.

Not everything about incentive pay is perfect, of course. When bus drivers start moving from place to place more quickly, they get in more accidents (just like the rest of us). Some passengers also complain that the rides make them nauseated because the drivers stomp on the gas as soon as the last passenger gets on the bus. Yet when given the choice, people overwhelmingly choose the bus companies that get them where they're going on time. More than 95 percent of the routes in Santiago use incentive pay.  

Perhaps we should have known that incentive pay could increase bus driver productivity. After all, the taxis in Chicago take the shortcuts on Lake Shore Drive to avoid the traffic that buses just sit in. Since taxi drivers earn money for every trip they make, they want to get you home as quickly as possible so they can pick up somebody else.

But the lesson of the Chilean bus drivers could apply beyond public transit. Economists perennially argue that if the government could improve its productivity the way that private companies do—if it could give us more performance each year for less money—that could help us balance the budget. It could help pay for the retirement of baby boomers. It could help senior citizens understand the Medicare prescription drug benefit. (OK, maybe not.) The point is that increased productivity saves money, which can then be spent on other things. The problem is figuring out how to actually make the government more productive.

The bus driver study suggests that incentive pay has promise in some settings. You can't easily use incentive pay on art teachers or politicians, whose success is hard to measure. But for the subset of government services in which productivity measurement is more straightforward—things like call centers, vaccination clinics, departments of motor vehicles, as well as public transit—incentive pay might raise efficiency and save tax dollars. It was, in fact, a Chinese government bureaucrat—Confucius—who long ago said that even the longest journey begins with a first step. Might the journey to higher government productivity begin with one foot on the gas pedal of a bus?

Austan Goolsbee is an economics professor at the University of Chicago Graduate School of Business and a senior research fellow at the American Bar Foundation.

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