Trmr,\p Rr.\.-A. Vol. 31, No. 2. pp. 129- 140. 1997 Copyright b’ 1997 Elsevier Science Ltd. Pergamon Primed in Great Bntain. All rights reserved. 0965-8564197 $17.00 + 0.00 PII: SO9658564(96)00012-2 AUTOMOBILE OWNERSHIP AND GOVERNMENT POLICY: THE ECONOMICS OF SINGAPORE’S VEHICLE QUOTA SCHEME ANTHONY CHIN Department of Economics and Statistics. National University of Singapore. Kent Ridge. Singapore OS1 I and PETER SMITH* Department of Economics, University of Southampton. Southampton SO17 IBJ. U.K. Abstract-Rapid growth in real income in many countries of South-East Asia has led to large increases in the ownership and usage of automobiles. In many major cities this has resulted in chronic traffic congestion. Singapore has so far avoided the worst excesses of this problem, by a series of policy measures aimed at controlling automobile ownership as well as usage. In the latest moves (from 1990). a quantity rationing system has been introduced to impose close control on the number of additional automobiles allowed in Singapore. augmenting a battery of price-based policies introduced over the previous 15 yr. This paper examines the theoretical basis for this switch in the focus of policy. and presents an econometric investigation intended to evaluate the overall success of the programme in controlling the automobile population. Copyright c 1997 Elsevier Science Ltd I. INTRODUCTION During the last 25 yr, there has been rapid growth of many cities in South-East Asia, combined with fast growth in real incomes. These factors have in turn led to rising auto- mobile ownership and use in cities such as Singapore and elsewhere. Road traffic congestion was observed as early as the late 1960s in Singapore. Reactive and piecemeal remedies such as road construction and traffic management measures were employed to try to control the problem, but these proved to be inadequate. By the mid-l970s, measures had become proactive, and in the period since then have taken a number of forms: increased investment and greater efficiency in public transport, an integrated and coordinated approach to land-use and transport planning, control of automobile ownership and use. and investment in road infrastructure, including a network of surface and underground expressways. The result of this coordinated approach is that whereas many cities in the world are experiencing chronic traffic congestion, the streets of Singapore are relatively free flowing with speeds averaging 30 km/h. However, by the late 1980s there was much concern that automobile ownership had begun to increase too rapidly, despite high import taxes. registration fees and road taxes. This was due to high economic growth, so that increases in income were neutralizing the effects that fiscal instruments might have had on automobile ownership (Chin and Kohl, 1989; Phang and Chin, 1990). In 1990 a quota system was introduced to regulate the number of additional automobiles. The Vehicle Quota Scheme (VQS) is a quantity rationing system where a fixed number of Certificates of Entitlement (COEs) is issued each month. Persons who wish to obtain a new automobile must enter an auction and bid for a COE. This paper sets out to explore the economic justification for such a rationing system, to develop a model of the determinants of automobile ownership, and to use this model *Author for correspondence.