Are on-the-spot fines a good idea for public transport?

The government is proposing to bring in lower, on-the-spot fines for public transport ticket infringements, worth $75. Online, people are questioning exactly why the government can arrange mobile payment for fines on trams, but not for tickets.

So, Now I can pay a fine on-the-spot – but I still can’t buy a tram ticket on the tram? http://t.co/YmNXBwBq0I Nice work PTV

— Kip Brennan (@kipslife) August 5, 2014

I want to ignore that for the moment, and ask whether this regime is really smarter.

The fundamental economics of fare evasion fines is simple. There are two factors. A probability of getting caught, and a size of punishment.

If the product of the two is less than the cost of the ticket, you can’t expect people to buy tickets.

For example: the fine is $20 and the inspector is on 10% of trams and trains, you are better off paying $2 on every tenth tram ride than $3.58 for a ticket.

Do you increase the chance of getting caught or the fine?

Ticket inspectors are expensive. They are humans with sick kids and compo claims and they demand superannuation etc, etc. You don’t want to pay too many so the simple model is to make the fine very high.

Your chance of getting caught may be 5 per cent, but because the fine is $220, you are better off buying a ticket. That keeps costs down and encourages compliance.

The table covers chances of getting caught between 1% and 33%, and fines from $5 to $235. The red areas are combinations of fines and chances of detection at which it doesn’t make sense to pay $3.58 for a 2-hour zone 1 full-fare ticket.

My concern is that if they are reducing fines from $220 to $75, it means they should be planning to have four times as many inspections to get the same deterrent effect. That means four times as many authorised officers on the public payroll. And I hate those guys.

But maybe, something different is going on. Could there be a behavioural economics aspect to this?

Humans exhibit present bias [discussed here].

“A leading example of a behavioral bias that impedes market efficiency is present bias, or the tendency of individuals to place much less weight on the future relative to the present than would be predicted by standard models of time discounting. Present bias can lead individuals to make decisions today that reduce future welfare in ways that individuals will later regret (Strotz 1955, Laibson 1997). Analogous to an externality, the situation in which an individual’s decision in the moment creates negative future consequences is sometimes referred to as an internality. Present bias is posited as an explanation for behaviors ranging from a failure to save to smoking.” 

Could it be that a percentage of fare evasion is committed by actual Melburnians who don’t care about the fine because it’s coming in the mail, sometime in the future?

Certainly a share of fare evasion is committed by people who don’t care about the fine because they’ll be back in Gotenburg/Seoul/Lyon by then!

If you bring forward the fine to RIGHT NOW, you might be able to reduce the present bias that says fare evasion is okay.

But costs are not the only relevant aspect. Could on-the-spot fines also manage the human tendency to imagine future effort is easy? “I’ll fight that fine in the court!” I told myself when i was last fined, about a decade ago.

In the end I did not fight it. I just paid it. The writing of the ticket and all the associated palaver in the current system allows one to imagine that the fine is avoidable, somehow. An immediate fine would avoid that. 

For the behavioural effect of on-the-spot fines to work best, Cash would be optimal, but the authorised officers will accept only eftpos.

Of course the minute you allow ticket inspectors to accept cash for fines, there will be some that stop issuing receipts and their reputation will become even worse.

Tell me what you think about on-the-spot fines? Will they work? Would you fare evade more under this regime? Is this all just about saving administrative work in the back end of the Department of Justice? I’m keen to see your views in the comment field below!