1. Rewarding Drunks To Create Efficiency

While I was in USA, I was working with a local non-profit who provides temporary housing and support to poverty ridden folks. And while doing research for them, I come across Seattle’s “1811 Eastlake Project.”

The project rewards the chronic drunkards of the city by giving them a rent-free place to live forever. The reasoning is: rehabilitating the worst drunks cost about $13,000 per year. But if these folks aren’t given free food and stay and taken care of, they end up costing $50,000 to the system per year on average… because of the staggering costs of the detox vans, emergency rooms, hospital fees, cop interventions, prison charges etc that each of them racks up.

Its a lot cheaper to have a drunk spend the night in a nice home than in an E.R. or in prison!

Even though I’m a big proponent of “everything that is rewarded – grows” – this issue made me realize that rewarding the bottlenecks is sometimes necessary to create better efficiency for everyone else.

2. Punishing a City & Killing Efficiency

Mumbai traffic is absolutely mad. Especially traveling to-and-fro from the suburbs to the city. It takes 40 minutes to cover a 8km distance during peak hours.

But there is no more space to create more roads on land to connect the suburbs to the city. So the government makes a bold plan to build a 2km sea-link from Worli to Bandra. This sea-link would cut down traveling time by 1 hour for everyone during peak traffic hours!

The “planning” shows that the 2km Sea-link would cost Rs 300 crore ($60 million) to build. Ah… the best laid plans!

The Worli fisherfolks oppose the building of the Sea-link. It would disturb their fishing. And because of their opposition, the Sea-link has to be extended from 2km to 5.6km and the height of the bridge has to be increased. The end result is: the Rs 300 crore bridge costs more than Rs 1,800 crore ($360 million) and is delayed by more than a year (add the opportunity cost of 120,000 cars driving 1 hour more than required everyday – for more than a year because of the delay!)

Wouldn’t it just have been better to allocate Rs 300 crore to the Worli fisherfolks to make it easy for them to adapt – instead of adapting the bridge to work around them and increasing the cost by 6 times? Yes many of them fishermen would be inconvenienced. Many would have to move. But paying a few lakh to each of them would have taken care of their grievances. And saved Mumbai $250-300 million and a year of crazy traffic!

June 4, 2009