Thursday, April 1, 2010 0 comments

Drugs and Car Tags: Incentives, Competition, and Inefficient Bureaucracy

I recently carried my son with me to run some errands. On the way back home he asked me why we waited in line so much longer at the DMV than at the drug store. My ears perked up: Here was a chance to educate my son about incentives, competition, and inefficient bureaucracy. I answered as follows:


The difference has everything to do with incentives. At the drug store (an independent outfit close by our house), the pharmacist/owner depends on his customers for his living. He knows he must keep his customers happy or risk losing them to a competitor. He keeps his customers happy by calling them by name, treating them courteously, and filling their prescriptions quickly. His employees are likewise dependent on the customers. They know that, if they upset the customers or cause them to have their prescriptions filled elsewhere, the pharmacist will fire them. So, everyone at the drug store has an incentive to give fast and friendly service.

That's not the case at the DMV. For one thing, there is no competition. The law requires that motor vehicles display current registration decals, and those decals are only available at the DMV. No matter how unhappy one is with the service, he must still purchase his decal from the DMV. Because of this lack of competition, the employees and managers at the DMV have little or no incentive to give fast and friendly service, so they usually don't.*

People respond to incentives. In the absence of incentives to work efficiently, people will work inefficiently. If there were a way to make employees at the DMV more dependent on the humor of the public, I think we'd see a rise in the level of satisfaction with that element of the bureaucracy.

*I note one exception to this "rule": When I recently purchased a new car and went to the DMV to get a new tag for it, the clerk that handled my request was the most friendly and efficient I have ever come across. I told her so and sent a letter to her supervisor to let him know as well. Still, I think you will agree, this experience was an exception, not the rule.

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