Red bus, green bus: Market organization, driver incentives, safety, and sorting

Abstract

We examine minibus competition in Hong Kong between two similar types of minibus firms: those that operate green minibuses and those that operate red minibuses. The two types of firms are distinguished by their industrial organizations and by the restrictions placed on their operations by government regulators and triad societies. Green minibuses are subject to government fare, level of service, and route regulation, and the drivers are paid a fixed monthly salary. Red minibuses are not subject to government fare, level of service, or route regulations, but they are regulated by triad societies, and their drivers are residual claimants who either own or lease their minibus. The institutional and operational characteristics are used to formulate testable implications on accident rates and journey times based on differing driver behavior under these alternative industrial organizations. The empirical results show that red minibuses have a substantially higher accident rate and lower peak-period journey times than do green minibuses, and that green minibuses have slightly lower journey times in the off-peak period. Efficient sorting may imply that passengers with high values of travel time savings and access to both types of buses may choose to ride red minibuses during peak periods and switch to green minibuses in off-peak periods