econs project

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C.o.E

Is the Certificate of Entitlement (COE) a good method to manage road usage? : 

Is the Certificate of Entitlement (COE) a good method to manage road usage?

Introduction : 

Introduction Nowadays, congestion is increasing on Singapore roads. The Singapore government introduced the Vehicle Quota System to minimize road congestions. The system is called Certificate of Entitlement and it was started on May 1990.

How COE works : 

How COE works A person who wants to register a vehicle to use on the road have to acquire a Certificate of Entitlement(COE) so he can drive on the road without breaking the law. A limited number of COEs are given out each month to be bidden by future drivers. The highest bidders win the bids and get to drive on the road.

How COE works : 

How COE works A COE is valid for 10 years and is transferred with the ownership of the car if the owner decides to sell it before the 10 years is up.

How COE works : 

How COE works With this COE system, the population of vehicles in Singapore are kept to a 3% growth each year. This growth rate is comfortable for Singapore to maintain it with building new roads and infrastructures each year.

How COE works : 

How COE works If there was no implementation of COE, growth rate of vehicles in Singapore would have spiralled over the last 10 years. Traffic may be grounded to a halt, affecting Singapore’s development and quality of life.

Traffic congestion as a problem : 

Traffic congestion as a problem Serious problem for an economy Causes productivity loss as workers can get stuck in a jam and not able to get to work on time. For example in Colombo, Sri Lanka, the loss due to traffic congestion is Rs. 32 billion per annum.

Traffic congestion as a problem : 

Traffic congestion as a problem Another problem would be the large amount of cars driven on the road. The large amount of cars can cause pollution, affecting the environment and peoples’ health. Also tourism may be affected as tourists would not go to a polluted destination.

Phase 1 : 

Phase 1

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Since a fixed quota is released every month, supply is kept constant As more people bid for the COE, demand for COE increases and hence the demand curve shifts rightwards from D0 to D1. results in a rise in prices from P0 to P1, ceteris paribus.

Phase 2 : 

Phase 2

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Due to the rise in prices, it is now more costly to bid and purchase a COE potential car buyers and results in a fall in quantity demanded shift along the demand curve Prices increased from P0 to P1 quantity demanded to fall, movement along curve from D0 to D1. Ceteris paribus, quantity exchanged can be seen to have decreased from Q0 to Q1

Effectiveness of measure : 

Effectiveness of measure Assuming that the quota of the VQS has not been reached,

PED Graph- Price Elastic : 

PED Graph- Price Elastic

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Demand for cars is price elastic The effects of a price change on the quantity exchanged can be seen to be much more drastic

PED Graph- Price Inelastic : 

PED Graph- Price Inelastic

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Demand for cars is price inelastic Effects of a price change on the quantity exchanged are minimal

Thus, : 

Thus, The effectiveness of such a policy is largely dependent on the degree of elasticity of demand for cars. The effectiveness of this approach is limited as people who own cars will want to use it as often as they can - more so if the cost of ownership is high The government has shifted its emphasis towards usage control in recent years through the use of price signals

Electronic Road Pricing : 

Electronic Road Pricing ERP

Since the implementation of ERP, : 

Since the implementation of ERP, there is a gradual increase in the elasticities for ERP This suggests that motorists seem to have become more conscious of the change in price Motorist are more willing to change their travel pattern when confronted with a higher ERP charge Motorists can: Pay the ERP charge and enjoy a smoother drive Change the time of their journey to pay a lesser ERP charge Use an alternative road Use public transport

Effects of ERP : 

Effects of ERP reduced the traffic volumes in the Central Area during the morning peak hours and off peak hours by about 7-8% However, there seems to be an increase of 28% in the traffic volume during the evening peak hours and this could be attributed to the lower cost of driving in the evening when compared to the ALS era Nevertheless, the roads in the RZ have sufficient capacity to cope with the traffic volumes

Economic theory of ERP : 

Economic theory of ERP

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Price of the good increased from P0 to P quantity demanded to decrease from D0 to D1 Ceteris paribus, quantity exchanged falls from Q0 to Q1 This fall in quantity refers to a fall in number of cars on the specific road controlled by the ERP gantry, thereby managing road usage

Limited effectiveness : 

Limited effectiveness Critics argue that the system is only able to affect and control the quantities of cars in certain places at specific timings it does not go about reducing the overall quantity of the cars in Singapore, thereby only substantiating its short-term effectiveness The COE is therefore more able to address the overall quantity of cars in Singapore

In addition, : 

In addition, demand for luxuries tends to be more price elastic as consumers can do without it when it prices increases. quantity demanded for cars will decrease more than proportionately However, a good might be seen as a necessity to the rich where demand for luxury goods may be price inelastic due to their income level. But since Singapore is occupied by a large number of middle-income groups, COE will be more effective in controlling the number of cars owned and thus managing the road usage

PUBLIC TRANSPORT! : 

PUBLIC TRANSPORT!

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BUSES, MRT SERVICES CONVENIENT COMFORTABLE CHEAPER

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car ownership is Singapore is seen as a sign of prosperity and success. Many young working adults work hard towards getting their own set of wheels.

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social status is being rated by the type of car they drive taking of public transport is seen as a loss of face Thus many are more willing to pay the higher chargers of ERP and by owning a car despite the higher chargers will enhance its appeal as status symbol, even if a lifetime motoring will deplete the retirement savings of many motorists.

Govt’s policy on Public transport : 

Govt’s policy on Public transport Start the trend by ensuring that the top and senior public figures and corporate heads are seen taking the occasional ride on public transport.

Govt’s policy on Public transport : 

Govt’s policy on Public transport more socially acceptable for the many dependent car-owners to switch to public transport regularly once they know about the benefits that public transport brings about.

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Ensuring that ERP remains effective - update the ERP rate structure: raise incremental ERP charge from $0.50 to $1.00 ERP base charge will be increased from $1 to $2

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launch of circle lines Improving Public transport - ↑ peak period frequency of all basic bus services from 15mins to 12 mins by june 2008 and 10 mins by august 2009

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improving public transport - higher quality of service (QoS) standard for peak hour feeder bus services allow new bus services to ply along the mature rail lines (i.e. North-South and East West lines)

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↑ the number of premium services; from 42 services to at least 72 services revising the rail operating performance standards to ensure more frequent services during peak time periods - morning peak-of-peak: 2 to 3 mins - lunch time: 5 to 6 mins, down from the current 7 mins

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improvement in public transport act as a strong substitute (+ve XED) to private vehicles cheaper travel cost benefits and convenience that public transport brings about will cause the demand for public transport will ↑

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When demand for public transport ↑ demand for private vehicles will ↓ due to the heavy burden of owning a car Hence managing road usage

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price of public transport↓ quantity demanded for public transport will hence ↑ with the ↑ in the price of owning a private vehicle, demand for private vehicle will change in the opposite direction.

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Being substitutes, this causes a ↓ in demand for private vehicles. The demand curve for vehicles will hence shift to the left.

Conclusion : 

Conclusion COE is effective when used in conjunction with other measures. Need to be coupled with - ERP - Public transport to ensure effectiveness of managing road usage

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Thank You