Adam Smith is considered the Father of Economics for his book titled "An Enquiry into the Nature and Causes of the Wealth of Nations" published in 1776. This is the compilation of five related books. Of these five books, the fourth one is titled "Of Systems of Political Economy". On page 454 of that book's global edition a theory is given: "Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to society".
This theory is also called the theory of social welfare. To simplify, this means every individual in society always tries to maximise his or her return with whatever capital he or she possesses. Here capital not only means money but also the labour that one can employ. In fact, Adam emphasised labour. While trying to get most out of his or her capital, any individual does not think about the welfare of society but when all individuals of a society try to maximise their output, this naturally or necessarily leads to the maximised output of the society.
But how far is this theory applicable, when it comes to the community of drivers in Bangladesh? Let's have a look at this. Drivers are the individuals of this society. As rational human beings as described by Adam Smith, they try to maximise their output for the capital they employ. Here the capital is the labour they put in driving their vehicles and the output is the earnings they make at the end of the day. How do they earn and maximise their earnings? Their income is directly proportional to the number of passengers they are able to serve. Therefore, maximisation of the number of passengers is equivalent to the maximisation of their income. How they maximise their number of passengers is the moot point here.
We, the passengers, are very rational and clever. We know the car that is ahead of all, most of the time, will reach the destination earlier than the others and certainly we'll get into the bus that takes us early to our destination. As the fare is the same for any bus we get into and we have an inherent inclination to take the first one, the second one in the line may not be the preference in almost all the cases. Bus drivers are also rational and they know about the psychology of the passengers more than the latter know about themselves. Though there are several reasons the passengers in some case may choose the second bus, but this choice has little impact on the thinking of the drivers. They have the strong desire to be in the first place, because they believe it is the only way they can maximise their earnings. Now let's look at the theory of Adam Smith from the perspective of the community of drivers.
Two situations are given in the figure-1 and figure-2 here. These are the graphical depictions of a real road junction at Paltan in Dhaka city where almost all the time there remains a traffic jam. It is an ideal point where the buses compete with each other and almost all the main city bus routes meet. In situation 1 the road condition is ideal. The orange line is the road divider, indicating the way to go left. Therefore, the general rule is: the vehicles requiring to go left will remain in the left lane from the beginning and the vehicles requiring to go straight will go straight. Now the bus B2 is ahead of the B3 and will get most of the passengers, if all the three buses B1, B2 and B3 run on the same route. After sometime when its capacity is full, B2 will leave the place and the next bus B1 will take its passengers. Here the B1 will not get a significantly lower number of passengers than B2, as in Bangladesh the number of passengers is high and increasing. But the B2 will have some advantages.
Now let's judge the situation 2 in view of the theory of Adam Smith. As the output and earnings maximisation tempts the drivers to strive for the first position, all bus drivers will try to get there. In that case if the bus B3 tries to get to the first place, we can see here what happens then. As the B3 is trying to get to the first place from behind, it is overtaking B1 and entering the road left from the right side, but it cannot, as the B1 is also trying to get there. Resultantly, they get stuck and the road is blocked. In that case, the buses from behind, B4, B5, B6 and others, which need to go straight, cannot. This creates a traffic jam. This is the picture of one of the four roads here. If the same thing happens on all four roads at the intersection, the whole area will plunge into a chaos. Buses will not move, passengers will get their time wasted and the drivers will not be able to earn whatever they could have, if they had maintained the line. In such a situation we see the output both for the society and the individuals is getting minimised, even though they strive for maximisation of their earnings.
In a situation like this, the more any individual tries to go for the maximum output, the more the society will lose. The drivers are always going to act like this. We can take help of the Nash Equilibrium to prove their continuity of this action. We can explain the above situation in the game below:
Players: Bus Driver of B1 and Bus Driver of B3
1. Following the lane
2. Breaking the lane
Payoffs: The payoffs are shown in the following payoff matrix:
This is the payoff matrix for the drivers, assuming that they are able to break the lane and overtake successfully and by doing that they can maximise their output (At least the drivers in Bangladesh believe this) and there is no lane following the law. The payoffs are in the generic form, from 2 to 4, 2 being the lowest. The difference between the numbers is not necessarily equal, meaning difference between 2 and 3 may not be equal to the difference between 3 and 4.
We see an interesting situation has arisen here. Both the drivers have the tendency to break the lane. For B1, changing the strategy from following the lane to breaking it increases the payoff from 3 to 4 when the B3 follows the lane. But when B3 breaks the lane, changing the strategy does not change the payoff for B1. For player B3 also, breaking the lane increases the payoff from 2 to 3 when B1 is following the lane. When B1 is breaking the lane, changing strategies won't change the payoffs for B3. Now as both the players think they are getting their payoffs increased by breaking the lane, they are going to do it and in turn get their output decreased to 2. This situation is interesting, because, one player can increase another player's payoff by maintaining the lane, but they are very unlikely to do that, as Adam Smith has said, during maximising the output, individuals are unlikely to think about the society's output. Hence, at the end, the society is getting the least. If we look at the figure 3, the whole thing will be clear.
Here in the graph we see M and A are the maximum points for B1 and B3 respectively. But if both the players think they can maximise their output by changing their strategy, they will end up at the N point which is less than the output from any other option available to the players. Thus we lose the optimum points for the society, a situation unlike any that corroborates Adam Smith's theory.
Adam Smith has given this theory thinking of the overall good of the economy, but the situation presented here is a special case. Of Smith's theory, only the last part which states, "But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to society" is somewhat in question here. Drivers' strive to maximise their profit is not increasing, rather decreasing, the output for the society. Earlier, John Nash also refuted this theory juxtaposing it with an event in a bar (we have seen that situation in the movie "A Beautiful Mind"). He termed this theory incomplete and gave mathematical explanation of his refutation which is now known as Nash Equilibrium. The Figure 3 shows a form of Nash Equilibrium in the situation presented here.
Now, let's turn to one of the biggest problems of Dhaka City and find a remedy to it. There are numerous statistics on the financial, social and mental damages caused by traffic jams. If one opens one's Facebook wall, certainly one will see the excruciatingly frustrating posts of friends stuck in one of the traffic jams in this big city spanning an area of only 104.2 mi2 almost equal to one third of New York City. Dhaka seems to be one of the top cities of the world, at least in terms of the time required to commute from one place to another place. The problem is being analysed, plans are being drawn up and implemented. But there is little improvement. The city seems to be a permanent abode of the problem.
One of the main reasons behind traffic jams in Dhaka city is the drivers' willful driving. They try to maximise their output leading to a chaotic situation on the roads. Thus, they not only get their income but also the social output reduced by killing the passengers' time, taxing their patience and wasting natural resources like gas. Why do they do that? They are rational. According to Adam Smith, every human being is rational and they strive to maximise their output. Here they are not thinking what is best for the society. This leads to the conclusion that unless the drivers start thinking about welfare of the society along with their output, our grapple with this problem will not cease to exist. How can we make them think of both themselves and the society? Here we can apply the knowledge of Game Theory.
In a typical game situation, we have three probable solutions, such as:
1. Mechanism Design or Changing the Rules of the Games
2. Using Legally Binding Contracts
3. Using Long Term Relationship
Option 1 means to change the mechanism of this game, in which the drivers will continue to act like what they are doing now, but the rules will ensure their actions' optimum benefits for the society. This requires a lot of creativity and research. This may also require infrastructural changes across the society. In the short-run, this option loses its feasibility. Option 3 relates to the bus owners who will dictate the drivers to earn reputation by following the lane, maintaining time and abiding by other traffic rules. Day by day, this reputation will grow and people will have faith in the bus companies that follow traffic rules and maintain other regulations that optimise the output for the society. This reputation earned over a long period of time will make the drivers act in society in the optimum way. This option is also not feasible in the short run. But both of these options can yield longer and more effective outputs in the long run. We should take immediately long-term measures to solve this problem and try to implement them.
Option 2 denotes legally-binding contracts that we can apply for the immediate solution. Using legally-binding contracts means we will take legal initiatives to bind the players of the game to act in a way that yields the optimum benefit for the society. Here the arrangement is very simple. Here there are two strategic actions available for the players. One is to follow the lane and the other is to break the lane. We have to set a pre-determined penalty for the drivers who will break the lane. The level of punishment should be greater than the output they gain from breaking the lane. A proper financing valuation model should be used to determine the extent of penalty. As the drivers are rational, they will not commit anything that, regardless of his success or failure, will cost more than that they earn. So, they will follow the rules.
How can this option be implemented? We have traffic police on every important road. They will closely monitor the drivers. Whenever the drivers break any lane, they will get tickets mentioning the degree of penalty. Our traffic system is now updated and they now charge penalty digitally from POS machine. This is quick and effective. Therefore, this way of charging penalty will not take much time. The penalty amount can be determined by any financial valuation expert based on easily-available information. From the penalty, a large portion should be set aside for the person charging it to inspire them to deal with it strictly. Here we can also use auto sensor cameras on the streets as in developed countries to take pictures of vehicles breaking the lane and charge the penalty at the end of the year during renewal of their licences. Use of technology will make it more effective. This option will help reduce significantly traffic jams in the city.
Here the focus has been on the main reason behind the traffic jam. Therefore, the other issues such as more cars in proportion to the roads, road blockage, road construction, etc. need to be addressed separately. This piece is based on a small survey among my friends. According to them, almost 40-50 per cent of the jams are caused by whimsical driving by the drivers. Having simply legal contracts can help reduce 40-50 per cent of the traffic jam.