Rough Theory

Theory In The Rough

Ticket Insurance

Via Marginal Revolution – perhaps Russ should use this concept in his Transport Planning course?

“My favourite ticketing system was in Mumbai, India,” Kim enthuses. “No one actually buys a ticket, but you can buy ‘ticket insurance’ from private entrepreneurs who work at the entrance of the station. The ‘ticket insurance’ is about half the price of a regular rail ticket. It gives you a guarantee that, in the extraordinary event that you are booked by a railways inspector for taking a free ride, your fine will be paid. A relative was once booked and the ticket insurer paid the fine exactly as promised.”

Here is the link, and thanks to Brendan Leary for the pointer.

At the very least, it’s a new way of thinking about Russ’ free rider problem.

2 responses to “Ticket Insurance

  1. Russ August 4, 2007 at 3:44 pm

    Thanks for the pointer NP. It raises all sorts of weird efficiency issues. The insurance sellers are effectively ticket sellers, but at a lower price. At least in theory, the railway company/gov’t could either increase the incidence of fines, raise the level of the fine, or reduce the ticket price to eliminate the insurance sellers, and go back to a single ticketing system. According to this discussion, it has existed for some time, so the insurance business seems to be limited by geographical/funding constraints: a subset of commuters from sparse areas where finding the ticket-less is hard.

    Funnily enough, I had an additional reminder of this post yesterday, since the boss at work was reminiscing on TV licensing fees. A system, that needless to say, we’ve since discarded. in favour of general taxation.

  2. N Pepperell August 4, 2007 at 6:39 pm

    I had the same thoughts about the insurance sellers – since the premiums don’t seem to be tiny, relative to the cost of tickets, and since the existence of the insurance seems widely known, you’d think authorities would start tinkering with the ticket price or inspection regime – unless there’s an informal arrangement with the insurance sellers?

    I hadn’t realised Australia had had, and then abolished, TV licences, although I’m familiar with the concept. The US has never had them – federalistically complicated, I suppose…

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