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One service and two prices

One service and two prices
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First Published: Wed, Jan 02 2008. 11 18 PM IST

Updated: Wed, Jan 02 2008. 11 18 PM IST
If you ask your usual law-abiding citizen for examples of recurring nightmares in real life, chances are that he will put public service access on the top of his list. Now, why is that so?
It is “corruption” that opinion makers hold closest to their heart when asked to describe politicians or the bureaucracy. But this would be a simple supply-side explanation, possibly intended to wash away our collective guilt in perpetuating it. Popular prescriptions for this social evil range from stricter anti-corruption efforts and severe punishments, to more social awareness and even reforming our social morals. Unfortunately, these efforts ignore the incentives that drive and sustains this rent-seeking market.
One of the universally felt forms of corruption is in the delivery of public services by government agencies. Individuals accessing a public service have differing utilities and varying willingness to pay. Somebody in urgent need of access to a public service, or unwilling to wait for his turn, would be willing to pay a premium. He signals his intentions to an expecting official with bribes. In the absence of any formal mechanism to differentiate between those willing and capable of paying and those who are not, both categories end up harassed.
An interplay of demand- and supply-side forces perpetuate corruption. A rent offered for expediting a service sets in motion a cycle of adaptive expectations and positive feedback, in both the applicants and the recipient officials, on rent seeking. Any sort of overindulgent behaviour by an applicant quickly sets in motion a chain of adaptive expectations that creates problems for subsequent applicants.
Let me illustrate this with an example. Assume A and B apply for a building plan. Normally, both plans have to go through the same scrutiny and approval process. Suppose A urgently requires the plan and is willing to pay extra fees to expedite its approval. The existing process does not take into account his willingness to pay. An efficient market in municipal services will calibrate the price of services against demand, so as to minimize any deadweight losses. Differential pricing for services will enable A to get his plan approved earlier than B, but for a cost which A is willing to bear. B will in any case get his plan approved within the statutorily mandated time period.
This arrangement is Pareto optimal when compared to the previous one-price-for-all system, since we are now making both A and the municipal corporation better off, while B is no worse off.
Economists describe the concept of price discrimination, which captures the differential willingness of customers to pay. It is not new to public service delivery. Some years ago, the Indian Railways introduced a Tatkal scheme: passengers faced with urgency and a willingness to pay could buy their tickets just before the journey—but for a higher cost. This scheme was so successful that it was soon adopted by other agencies.
Public services such as birth and death registration, land registration, building plans, tax assessment, statutory certificates and civic services such as water, sewerage and electricity connections can be given on priority to those in immediate need of the service. Indeed, we can even have over-the-counter delivery of many services, with all the verification and scrutiny done in an hour or so, but at a high premium.
Taking the concept of price discrimination one step further, it is worth the effort to capture all those customers who are willing to pay premiums in accessing public services. Government agencies can enlist high net-worth citizens as premium customers. On payment of a fixed yearly subscription amount, an “edge card” can be issued to these premium customers, which will enable them to access the services delivered by that agency through a fast-track mechanism.
In any case, the Citizen’s Charter schedule will be adhered to, thereby ensuring that those unwilling to pay are not discriminated against. By channelizing the unofficial rents into a formal fee premium, it eliminates the distortions in the incentive structure that encouraged rent-seeking behaviour. Further, the mere fact that a high premium has been paid to access the service on a fast track is reason enough for demand-side pressures to ensure expedited service delivery.
It is important that price discrimination be coupled with computerization and process re-engineering to minimize the citizen interface in public service delivery channels. It has been observed that the probability of corruption increases in geometric progression with every additional interface between the citizen and government. Public services delivered through a single-window system with a single physical interaction for the citizen minimizes the probability of corruption and harassment.
Critics could say that this is pandering to elitism in delivery of even basic civic services. The reply would be that it would only be acknowledging the reality and institutionalizing an existing arrangement which cannot be wished away nor can be controlled beyond a point, without in any way affecting the mandated regular schedule of delivering services.
The argument that this discriminates against the poor and those who cannot afford to access this service is fallacious. The government has the obligation to deliver public services within a reasonable period of time. This arrangement has been institutionalized for the delivery of every service, by means of the Citizen’s Charter. Any service delivery which is out of turn and quicker than this schedule is obviously a privilege, and should rightly command a premium.
In the final analysis, the downside by way of commercializing even basic public services is more than counteracted by the upside in containing corruption.
Gulzar Natarajan is a civil servant. These are his personal views. Comments are welcome at theirview@livemint.com
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First Published: Wed, Jan 02 2008. 11 18 PM IST