Team-based incentives in transportation firms: An experiment

Abstract

Providing the right incentives to bus drivers has become an issue in many cities worldwide. Liberalization experiences and research have shown that high-powered incentives lead to safety hazards, lack of service in low-demand areas, and poor service quality. Fixed-wage schemes, common in tendered systems, are among the leading causes of increased fare evasion, as drivers do not control payment adequately. In a controlled experimental setting, we show that team-based incentives induce levels of effort similar to those provided by an individual pay-for-performance scheme but without undesirable operational decisions. We find that team contracts eliminate the conflict of interest between drivers, causing drivers to control the passengers’ payment while maintaining more regular speeds. Consequently, reducing safety hazards and rushing through low-demand stops, avoiding excessive waiting times, and keeping a uniform distribution in the passenger load. These characteristics are absent in the individual contract and are a crucial part of the quality of service.