The New Motor Vehicles Act has suddenly made it very expensive for people to flout traffic norms. We are talking about fines ranging from Rs. 500 to a mind-boggling Rs. 23,000. And we need to talk about this.


Who’s paying?

Since the new act kicked in, there’s been considerable debate on this subject and we thought we would offer the economist’s perspective. Even if it means needlessly complicating a rather simple subject matter.

But in the spirit of sticking to our self-declared mandate of covering things only related to the economy, we must trudge along.

The Story

When you set out on your scooty and head to the nearest Kirana store, you are faced with a momentous decision.

To wear the helmet or not to wear the helmet.

And the answer to this depends on how you calculate the expected payout if and when you get caught.

The expected payout or price you would have to pay in this case is obtained by multiplying the probability of punishment i.e. the likelihood of attracting a fine, with the cost of punishment, which in the old days was a fine amounting to a measly Rs. 100.

Now I know what you’re thinking. Who on earth does this calculation anyway?

Hold it right there, smarty pants. Even if you are not plugging in actual numbers, you are still making a rough assessment of sorts. That is how most rational people make decisions.

And if you’re simply riding through the corner street facing your apartment block, you probably will never wear that helmet. Because you know the expected penalty is almost 0. Who's going to catch you there? Right?

However in the off chance that you have to take a right turn outside the 4-way intersection, your expected payout changes. What if there’s a traffic cop lurking there? What if he spots you? There is a dilemma.🤔

But even if you pegged that there was a 90% chance of finding the cop, then you’re still thinking you only have to pay 90 Rs (0.9 x 100) And if you could bargain with the cop, maybe you could get away with 50 even. Who knows?

Is that really something that would scare the crap out of you? Probably not.

So you go out without the helmet anyway.

Bottom line: The two fundamental things driving your decision here is enforcement, which is primarily dependent on the number of traffic cops patrolling the streets and the total quantum of the fine.

And that brings us to today. Getting more cops at traffic stops overnight is not something that’s feasible. However, if you chose to drastically bump up the fines then the expected payout shoots up automatically. That 90 rupees suddenly becomes Rs. 900.

The helmet is now squarely back on your head once again.

A final argument here is that people will still get away by bribing the traffic cops. Well, that is in fact true. But the traffic cop is a dynamic entity. His expectations will now change. He will not settle for Rs. 50. In fact he might not settle for anything less than 800 when he knows you could end up paying Rs. 1000 either way. So the expected payout will continue to remain high and that’s why don’t forget to put that helmet on, the next time you take your little scooty out for a spin.


Tweet of the Day


5G Delayed?

Huawei says, 5G deployment in India will be delayed by 2 to 3 years if it’s banned from operating within India.

Clearly Huawei hasn’t met Mukesh Ambani yet.🤭

So off late, there’s been a lot of scrutiny over Huawei’s operations after the US banned the sale of Huawei products and services domestically. The US has also been urging other countries to do the same considering it believes Huawei has been spying on behalf of the Chinese government.

And Huawei is desperate not to lose its international business. So it’s been making subtle threats about the implications of banning the company overall. And in this case, it seems to think India will have to wait a couple of extra years to see the light of 5G if it were to ban the company.

But that’s simply a load of bunkum. It’s obviously true that Vodafone and Airtel still use Huawei’s network services to provide data connectivity and we would presume that they would continue to use Huawei for their 5G network solutions as well.

But Mukesh Ambani’s Jio uses Samsung and when they roll out 5G, these other companies will have to follow suit and if Huawei isn’t allowed in the country. Well, Airtel and Vodafone will simply go out and find someone else. It’s foolhardy to think Huawei’s absence would somehow delay the 5G rollout in India.

The 5G rollout will happen when Jio wants it to happen and that much is almost certain.

What else is happening?

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