Traffic congestion is blighting cities across the world. Monster jams hampering today’s metropolises are frustrating drivers, increasing fuel consumption and emissions, and creating a drag on economic growth. Tackling traffic congestion is a major challenge for governments worldwide and Singapore is no exception.
Among other measures, the Singapore government has made car ownership costly and kept alternatives affordable and efficient to keep cars off the roads. But does this approach work in creating a ‘car-lite’ society and avoiding gridlock in the rush-hour?
People from other countries are often shocked about the cost of car ownership in Singapore, now one of the most expensive places in the world to buy a car.
When someone invests a lot in something like a car and the investment cannot be reversed, they mentally want to justify those costs by using the car more.
New car buyers must bid in a monthly auction for a Certificate of Entitlement (COE) and the cost is added to the vehicle price. The COE for a small car will currently set you back S$25,000 but prices fluctuate depending on demand and supply. Last year, the government said it would freeze the number of vehicles on the road and the decision was followed by a rise in COE prices. Car owners also need to pay an Additional Registration Fee (ARF) which further elevates the cost of owning a car in Singapore.
The rigorous measures to tackle traffic congestion in Singapore have been studied by many countries plagued by traffic issues but none have specifically investigated the effectiveness of high cost car ownership on managing traffic congestion.
In a study at the National University of Singapore (NUS) Business School with Professor Ho Teck Hua from NUS and Assistant Professor Sedat Reza from the Nanyang Technological University of Singapore, we found that surging car prices had the unintended consequence of stimulating driving among the people who bought the cars. In other words, car buyers reason that as they have paid so much to buy a car, they should get maximum use out of it.
To assess the impact of high car ownership costs on car usage, we used data from 8,264 cars of a particular brand sold in Singapore between 2000 and 2013. When each car was serviced we tracked the kilometres driven and analysed this usage against the overall cost of ownership and congestion on Singapore’s roads.
Interestingly we found that people drove more when they bought a car with a higher price due to the increased cost of COEs and ARFs. High car ownership costs were associated with more driving even for experienced and wealthy car owners.
When someone invests a lot in something like a car and the investment cannot be reversed, they mentally want to justify those costs by using the car more. We found that this thinking changes over time. For the first 48 months of car ownership, usage remains high to compensate for the initial purchase. Then as the car ages, usage gradually decreases but the higher the initial cost, the longer this takes.
To find out how many extra kilometres this phenomenon has added to Singapore’s roads, we analysed the period from 2009 to 2013. During this time the quota of COEs was reduced from 17,030 to 6,546 and COE prices increased from S$11,278 to S$24,316. This increase resulted in owners driving their cars 5.6 percent (or 86 kilometres) more per month than they would have otherwise.
Our findings also deepen our understanding of other situations where consumers and businesses invest upfront and feel the need to protect or maximize their investment at any cost.
The ‘Concorde Fallacy’
For example, you’ve paid a levy to play in a casino but you start losing, do you leave or stick with it? According to our research, most people are likely to stick with it as they’ve invested in the levy and believe it would be a waste to walk away – even though staying may mean spending more.
This phenomenon can also become an issue for businesses. It is sometimes known as the ‘Concorde Fallacy’, referring to the fact that the British and French governments continued to fund the joint development of the Concorde supersonic jet even after it became clear there was no longer an economic case for it.
Another scenario can be seen with General Electric’s former CEO, Jeff Immelt, who ran the conglomerate for 16 years, and was criticised for staying too long given the company’s weakening performance during his tenure. CEOs need to ask themselves if they are still achieving the goal they set for their company or just emotionally attached to what they have invested in time, money, and reputation.
By keeping car ownership prohibitively costly and limiting the number of cars on the road, Singapore has avoided the massive traffic jams that hamper many cities. But we cannot ignore the fact that those who can afford a car won’t want to leave home without it.
The Singapore government is well aware of the dangers of relying on high car ownership costs to manage congestion and is already reducing vehicle taxes and shifting towards usage charges.
In fact, from 2020, Singapore will implement a new sophisticated road-pricing system which will use GPS to vary the amount drivers pay based on distance, time, location and vehicle. Drivers will receive real-time information about the cost and busyness of roads.
This will encourage people to consider other routes or alternative means of transport and may prove to be a more effective way to reduce congestion than imposing higher car ownership costs that inadvertently motivate Singapore’s motorists to drive more.