The Demand and Supply of Fines and Corruption

supply-and-demandA comment on the last piece prompts this tiny lesson in microeconomics.

“Corruption is one big pain point in the economic growth of a country. I have this funny idea but would like your inputs from an economists perspective. If things get costly it reduces its demand. Can corruption be made costly? This may increase compliance. Just to illustrate. If we raise fine for a fault, say traffic violation, which suppose today is Rs 500 to Rs 5000. Today the violator gets away by paying Rs 100 to traffic police. This is 20% of legal cost. If the penalty is 5000 and assuming traffic police acts rationally thereby asking for bigger bribe…won’t that deter future violations by the offender? Here I presume that traffic police will act smart knowing fully well that offender isn’t going to pay 5000 but at the same time he himself won’t settle for just Rs 100 and may raise ‘price’ to Rs 200 or 300. This is effective 100-200%% jump in bribe money that may pinch offender at some point in time. Pls throw some light.”

To start off, let’s examine the statement “If things get costly it reduces its demand.” In lay terms, that is true but economically speaking, prices don’t affect the demand or the supply of a product. To understand why not, we have to clearly understand what economists mean by “demand” or “supply” and distinguish them from “the quantity demanded” and “the quantity supplied.” Continue reading

Creating New Vote Banks

It’s been a while since I contributed to “The Indian National Interest Review: Pragati.” I had to write a piece. I didn’t want the editor, Mr Nitin Pai, to get mad at me. It’s always best to be on his right side. Never get the press angry, is what I always say. Now if you know me, you know that it takes me forever to write anything. At the very mention of writing, I feel a writer’s block coming on. Writing is the hardest thing I try. But anyway, I dusted off the old keyboard, put on my thinking cap and pondered market failures, government failures, and what can be done about them. Here it is for the record.

(Click on image for a PDF copy of the issue.)
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The Urbanization Imperative

In the February 2010 issue of Pragati I argue why India needs new livable, sustainable and well-managed cities. The text of the article appears below, for the record.
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Re-thinking Entrance Exams

The ability to do things differently than was done previously must rank as one of the more desirable features of any entity. Individuals and institutions that have the flexibility to change as circumstance change are more successful than others. Those who are confident of themselves can dispassionately examine what about themselves needs change. It takes intelligence to figure out what is wrong and how to fix it. It takes courage to admit that the current system just does not work. It takes optimism and self-confidence to know that one has the ability to do better. Every problem that India faces is amenable to a solution. The first step is knowing that there is a problem, however. Then come the needed attributes of flexibility, courage, optimism, confidence, etc. I will touch upon one small but much needed change. And propose a solution.
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A Brief Introduction to RISC

I had been pondering India’s rural development for a while before I signed up as a Reuters Fellow at Stanford University in Sept 2001. As a Reuters fellow, I developed a model for catalyzing India’s rural development. I called it RISC — for “Rural Infrastructure & Services Commons”. Later, Vinod Khosla and I co-authored the concept paper. This is a short version introducing the why, what, how of RISC.
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