Adam Smith Avoids Extortionate Bus Fare

‘Adam Smith’s’ eyes glimmer with triumph as the frustrated bus conductor climbs down from the roof of the bus as it swerves down the pot-holled mountain road towards Pokhara Bazaar, in Nepal. The great economist has just dodged his fare.

“Good economics?” I facetiously ask the tenth grade economics student who introduced himself as the 18th century father of modern economics. He and his friends grin, their faces lit up by the mid-day September sun. Because it’s Dashain, Nepal’s biggest and most important festival, the local bus companies have raised their fares by over 100% to benefit from the increased, inelastic demand for transport, the young Smith explains.

In response, he and his friends have started using a variety of methods to avoid the extortionate rates: arguing with the conductors until they give up, producing student I.D. cards and claiming tenuous special rates, or as I saw Smith do, simply ignoring the conductor until he leaves.

There is evidence that price hikes are not limited to transport. It is traditional for families to sacrifice goats and other livestock during the festival. The market value of live goats during Dashain this year has fallen significantly due to high imported supply and decreased demand due to early departure of migrant workers (which make up half of Kathmandu’s sometime population). Cash shortages amongst consumers have also contributed. In the capital this has often left intermediary livestock dealers struggling to shift at profit, their stock bought at high import prices before the start of the festival, in expectation of higher consumer prices.

But outside the capital, stronger monopolistic power of the marketing Nepal Food Corporation (NFP) and greater inelasticity of demand – possibly due to more rigid cultural and religious norms – have led many rural families to pay NFP set prices, above market value. Many of these rural families pay for such celebratory purchases with funds informally borrowed at interests rates sometimes as high as 10% per month.

The comment sections of some of the papers call for national and local government regulations to prevent temporary, festival-time price hikes, and that’s what the 15 year-old Adam Smith said should happen. It is unclear what the 18th century Scot would think.

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