Pricing fines for ticketless travel

In large mass transit systems such as those in Mumbai (or even Chennai), ticket checking turnstiles can significantly slow the flow of human traffic. The sheer number of passengers that use these transit systems daily makes it impossible to check the ticket of each and every traveler. Hence, the Railways, rather than checking the tickets of every passenger, instead relies on random checks. During these random ticket checking efforts, people traveling without a ticket are asked to pay a fine. This, the Railways hope, will be deterrent enough for people to purchase tickets before travel.

However, rather than ensuring deterrence, what this system has resulted is in an informal “ticketless travel insurance” economy. The concept is simple – rather than buying a ticket from the official ticket counter, you instead buy protection from an “informal insurance provider”. For a nominal “premium” (believed to be in the range of Rs. 100 per month) these providers insure you against ticketless travel. In other words, in case you get caught by the ticket checkers during the course of your “insurance”, these “insurance providers” step in to pay your fine! Check out this article in The Hindu about how these insurance providers work (WARNING: The link isn’t working too well for me, and is taking me to a third party site a few seconds after loading The Hindu page, so be careful before clicking through).

The very existence of this market, however, implies that fines for ticket less travel are not being priced properly. The math is fairly simple: if the price of the ticket is p and the probability of your ticket getting checked is frac {1}{N} , then the fine for ticketless travel should be strictly greater than Np. If not, it works out cheaper for your to pay the fine each time you are caught rather than buying the ticket.

So what role is being played by these “informal insurance companies”? Risk management! People don’t like risk. While on an average your ticket might be checked only once in 30 days (number pulled out of thin air), there is no reason that you will not be pulled up for ticket less travel multiple times in a month. By outsourcing the risk to a central party who pools the risks (from several commuters), you have a steady cash out flow and are hedged against getting caught multiple times (you might get caught but your insurer pays the fine). In fact, this is how insurance works in other sectors also.

What should the Indian Railways do to drive these “informal insurance companies” out of business? Currently, if the fine is S, S le Np. From this equation, you can see that the Railways can do one of three things so that this inequality gets reversed – the price of a ticket can be reduced – but that would be equivalent to cutting off the nose to spite the face, for it would have significant adverse impact on the railways’ revenues. Next, N can be reduced, or in other words the frequency of surveillance be increased. This, too, is not easily implementable since the Railways will have to invest in additional resources to check tickets. The last option is to increase S, and there is nothing that prevents the railways from doing this!

How will this work, though? By raising the cost of fines for ticketless travel while keeping the frequency of ticket checking constant, the “premium” a commuter will have to pay to these insurance companies will increase. If the fine amount is increased to a certain level, the premium a commuter will have to pay to buy ticketless travel insurance will exceed the price of buying tickets! And the insurance market will implode.

While this seems like a simple solution in theory, I’m not confident of it being implemented any time soon. Who knows – one might have to go to the Union cabinet to increase the level of fines in local trains. That’s how our railways is structured.

6 thoughts on “Pricing fines for ticketless travel”

  1. Loved the article. On a tangential note, I think the railways and travelers can greatly benefit if it raises the cancellation charges of tickets as well. Currently, small distance travelers book many tickets for consecutive weekends creating a scarcity. Since the cost of cancelling a ticket is low, they just cancel it whenever needed.

  2. As a student of Economics, absolutely loved how lucidly you made that point. Looking forward to more such articles.

  3. Amazing article. The question for Railways is by how much should they increase the fare by? Though it is not very tough to guesstimate if data on number of random checks being carried out is disclosed (railways would record it I am assuming).

    Just like, fares are increased once in a while, so are the fines. Interestingly, fines for doing peaceful activities like running an unauthorised school in which parents are paying fees and children are studying is Rs. 1 lakh as per the RTE Act whereas fines under various sections of IPC and prevention of food alliteration act for causing harm to others in various forms ranges from Rs. 500-2000.

  4. Tragedy of central planning. If the official fine is too high, people can pay the unofficial fine to the person checking ticket. Get the Govt out of railway business, the private market will figure it out.

  5. There is one more feature you forgot. If the fine is too high, the person who checks for the tickets will ask for half of the fine(as bribe) to let them go.

    I am assuming at present, the insurance company is asking for bill as proof of fine from ticketless passenger to reimburse the fine paid. Wonder what they will do if they are faced with choice of paying heavier fines with receipts and paying smaller bribes without receipts.

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