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T&T'S PREMIER THINK TANK

Dual Pricing to Reduce Corruption

3 Jul 2018 9:32 AM | Eric Hopkins (Administrator)


I recently applied for a new passport. It costs only $250! Why are passports so cheap if the decade-long driver’s license costs $1,000? Even the 5-year license is $500, still twice as much. Driver’s licenses only let you drive on our two islands. Passports get you onto a plane that can allow you to see the entire world. I’m assuming they cost more to make and have much more advanced technology to prevent adulteration. When I got my driver’s license, it was printed right in front of me in the Tobago office.


But this blog entry isn’t just about that mispricing but about the concept of dual pricing for government services. Dual pricing would involve a low general price for most with standard service but a premium price for expedited service. This has several benefits.


How it will work

80% of the public will pay a lower generic price and receive generic service. However, 20% of the population will be able to pay a market rate for an expedited service. It could also be that the top rate is higher than market rate and those with means cross-subsidize the cost of producing the good or service. There is usually an initial guess for the premium price. If the premium demand is above the desired 20%, the price is increased, usually weekly. Most democracies usually have an allowable spread between the premium product and the generic service. This spread is usually determined by policy makers and are in line with the country’s strategic goals. As such, if the international benchmark for time to get a new passport is one month, policy might allow the generic service to be no more than 6 weeks. And the premium service will likely be in line with international best practice. Usually prices settle into a known rhythm with known seasonal variations.


It should be noted that dual pricing is not a way to get around requirements. As such, you will still need to pass your driving test. It offers only a time saving, not easier requirements.


Benefits

The top level price can be set by market forces allowing the relative value of various government services to be more accurately priced. As such, we can probably assume that passport prices will be higher than driver’s licenses. This allows a market signal to tell the government which services should be improved based on the benefit to citizens. For example, let’s assume that the price for premium passports was $2,000 for the expedited service, that could signal government to take several steps. The government could then increase the staff at this agency to reduce the time overall. The government could increase the cost of the generic service in recognition that this service is more valuable and perhaps under-priced.


By allowing an avenue for the desperate to get premium service while remaining within the law, this should also reduce corruption. For me, this alone is worth it. Trinidad is not yet a place where you will be denied a good or service from a government agency without first paying a bribe. To me that’s the lowest level a country can reach when it comes to corruption. However, as we have gotten richer, more and more of us have the means to pay what is referred to as ‘speed payments’. And to me, this weakens our democracy.



We already have a similar structure with the Concordat. This is a relationship that allows religiously affiliated secondary schools to choose 20% of their student population. Ostensibly, this was to allow them to choose co-religionists. However, because some of these schools were ‘prestige schools’, it also allowed them to offer these prized spots to patrons who would then make donations to the school. This means that the few who pay help build new labs and keep these schools top notch and keep our elites tied to our public schools. It also means that providing a way within the system, the rich do not need to subvert the existing system or build a totally separate system.


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