Transportation plays a crucial role in any modern society. While transportation is sometimes valued by consumers (‘passengers’) as a standalone service, in most cases passengers value transportation as an intermediate service that allows them to consume other goods and services accessible at distinct physical locations.
Passengers may choose to either provide ground transportation themselves or seek out individuals offering such services—either way, markets have evolved to meet the demand for transportation. For example, markets for automobiles have developed to cater to the demand of individuals seeking to provide private ground transportation services. Similarly, markets for public transportation services have developed to cater to the demand for individuals seeking to outsource the service. This article focuses on the market for public transportation services.
The free-market economic system, in which market outcomes are determined exclusively by consumers and suppliers, typically leads to the most efficient allocation of resources. There are certain market realities, however, which cause free markets to allocate resources inefficiently. Market externalities, which are observed in the market for public transportation, are one such reality.
In particular, public transportation services allow individuals to participate in key sectors such as labour (employment), education (human-capital investment), healthcare, among others. To the extent that the social benefits of an individual being gainfully employed, educated or healthy exceed the private benefits of doing so, then the transportation market which often facilitates such outcomes, is said to convey positive externalities to society.
Similarly, to the extent that the social benefits for an operator of public transportation services taking the appropriate safety measures exceed the private benefits of doing so, then the public transportation market is said to convey positive externalities to society.
The presence of externalities renders the free market as an inefficiency mechanism for organising the public transportation sector and warrants the intervention of the Government in the form of the Transport Authority.
The Transport Authority is the primary regulator of the public transportation sector. It has stipulated minimum standards for passenger and driver safety; issues licences to operators; and establishes rates for route and hackney carriage operators. For some time now, anecdotal evidence has suggested that the regulatory framework is inadequate to bring about the desired level of efficiency. For instance, there are transportation routes with an excess supply (resulting in congestion) while other routes have an excess demand (resulting in protracted waiting time). The observed inefficiency is due, at least in part, to the enforcement of certain regulatory measures as well as to difficulties in enforcing other regulatory measures. In particular, the enforcement of price caps and the difficulty of excluding unlicensed operators contribute to the excess supply of operators on the most lucrative routes and the excess demand for public transportation services on the least lucrative ones.
The ride-sharing transportation operator has recently emerged as an innovative alternative to the traditional mode of public transportation, providing a convenient platform for operators and passengers to organize short trips. The more popular implementation of this business model is observed in Uber, InDrive and 876 On The Go. It is a useful addition to the suite of transportation options available to passengers. In fact, ride-sharing services offer a convenient way to address some of the issues in the public transportation sector, such as unreliable and inconvenient transportation options, communication gaps in the market, and a shortage of operators on some routes.
Unfortunately, the ride-sharing platform currently operates outside the scrutiny of the Transport Authority, unlike the traditional transportation operators. To the extent that regulation is necessary to realise efficiencies in the sector, then the current conditions under which ride-sharing platforms operate in Jamaica raise concerns in areas such as passenger safety and the competitive dynamics in the sector. While there are obvious potential benefits of the ride-sharing platform, the extant modus operandi of entering and expanding in the sector is likely to frustrate attempts by the Transport Authority to bring about efficiencies in the sector.
Addressing these issues is of paramount importance to policymakers, given the importance of the public transportation sector to the viability of sectors such as labour, health and education, which help to promote sustainable development goals.
Accordingly, the Fair Trading Commission is undertaking a study to assess the regulatory framework governing ride-sharing services with a view to making recommendations geared towards improving the efficiency of the sector and thereby aiding a market-oriented solution to the promotion of sustainable development goals.