Abstract
There is an apparent inefficiency in the workings of the primary bus operators in New Delhi. The paper focuses on labor inefficiency and compares the compensation schemes offered to the conductors of the two major bus operators in Delhi- Delhi Transport Corporation (DTC) and Delhi Integrated Multi-Modal Transit System (DIMTS). Such a study which compares the labour efficiency, and incentive schemes offered by these two primary bus services has not been done before. The results from the interview of bus conductors of DTC and DIMTS are used to establish the presence of moral hazard. The wide literature on the principal-agent problem is then examined, to find a wage scheme for DTC employees, which provides adequate incentives to them to perform efficiently. Hart and Holmstrom’s (1987) non-linear wage model is suggested in this case study to eliminate the problem of moral hazard. It is also found that the wage scheme offered by DIMTS is more efficient than that of DTC.
Highlights
Inefficiency in public sector enterprises has been a relevant study topic and is well documented
In order to solve this problem, an optimal wage scheme is suggested for Delhi Transport Corporation (DTC) employees and its comparison is made with the one offered by its competitor Delhi Integrated MultiModal Transit System (DIMTS)
There has so far been no such comparisons made between the workings of DTC and DIMTS, one that focuses on labour efficiency, wage and incentive schemes offered by the two bus services
Summary
Inefficiency in public sector enterprises has been a relevant study topic and is well documented. One such study done on the Indian industries, Mookherjee (1997), reviewed industrial policy and selected aspects of performance of Indian Industry between 1950 and 1990. It concluded that the burden on the exchequer increased when there were other social objectives to fulfill. In order to solve this problem, an optimal wage scheme is suggested for DTC employees and its comparison is made with the one offered by its competitor Delhi Integrated MultiModal Transit System (DIMTS). There has so far been no such comparisons made between the workings of DTC and DIMTS, one that focuses on labour efficiency, wage and incentive schemes offered by the two bus services. Theoretical literature on principal-agent problems is rich and this literature is explored with reference to this case study to find the optimal wage scheme for DTC bus employees. Hart and Holmstrom’s (1987) non-linear wage model is suggested in this case of imperfect information and unobservable effort to incentivize the bus operators in a way that encourages them to perform efficiently
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