Two systems of bus driver compensation exist in Santiago, Chile. Most drivers are paid per passenger transported, while a second system compensates other drivers with a fixed wage. Compared with fixed-wage drivers, per-passenger drivers have incentives to engage in “La Guerra por el Boleto” (“The War for the Fare”), in which drivers change their driving patterns to compete for passengers. This paper takes advantage of a natural experiment provided by the coexistence of these two compensation schemes on similar routes in the same city. Using data on intervals between bus arrivals, we find that the fixed-wage contract leads to more bunching of buses, and hence longer average passenger wait times. The per-passenger drivers are assisted by a fascinating group of independent information intermediaries called sapos who earn their living by standing at bus stops, recording arrival times, and selling the information to subsequent drivers who drive past. This bus-bunching phenomenon has frustrated passengers in cities around the world, so it is exciting to see evidence that contract design can improve performance in this dimension. According to our results, a typical bus passenger in Santiago waits roughly 10% longer for a bus on a fixed-wage route relative to an incentive-contract route. However, the improved wait times on the incentive-contract routes come at a cost. The incentives lead drivers to drive noticeably more aggressively, causing at least 67% more accidents per kilometer driven. Most people in Santiago blame "La Guerra por el Boleto" for the poor service provided by buses. Our results have implications for the design of incentives in public transportation systems.
Last revised: August 2006
Return to David Reiley's Curriculum Vitae