1

Investigating the extent to which the prices set for public

parking are an example of government failure
Completed for the Extended Essay IBDP
Under the supervision of
Mrs. Lopamudra Sen

Advait Kaushik
The Cathedral and John Connon School

Research Abstract
This extended essay examined the research question, To what extent are the prices set for
public parking in Mumbai an example of government failure?. Throughout the essay, a
variety of sources primary and secondary were consulted. 35 areas of Mumbai spanning
a distance of 29.9km were surveyed, and 82 people across these areas answered a
questionnaire about public parking. The data led to the conclusion that the government had
imposed a maximum price on public parking. Due to the highly inelastic nature of public
parking supply and the inelastic nature of demand proved through the questionnaire and
secondary data it was concluded that little-to-no deadweight loss had taken place as a result
of the price-ceiling. However, a black market was generated that led to a huge loss in
revenue. The loss in revenue was so much that the total revenue collected was less than the
total variable cost, a condition for shut-down. However, since public parking cannot be shut
down, the inference was that the government should raise the price. An analysis of the
opportunity cost of setting up a public parking spot showed that the rent prices of land across
the areas was different, but the government-set price was the same showing that the
government hadnt correctly valued the opportunity cost of creating parking spots. This claim
was supported by a member of the World Banks Mumbai Transformation Support Unit.
Lastly, a comparison to prices for private parking showed that the government-set prices
were far lower than their private counterparts, but both sets of parking areas were almost
equally filled. The conclusion made supported the initial hypothesis that the prices-set by the
government are too low, and have thus led to a misallocation of scarce resources, an example
of government failure.

Table of Contents
1. Research Abstract

2. Introduction

3. Methodology

4. Demand and Supply

a.

Price Elasticity of Demand (PED)

b.

Price Elasticity of Supply (PES)

c.

Quantity Demanded and Supplied

d.

Demand and Supply Diagram

5. Welfare Analysis

a.

Before the Price Ceiling

b.

After the Price Ceiling

6. Revenue Analysis

11

7. Emergence of a Black Market

11

8. Opportunity Cost

15

9. Comparison to Private Parking

16

10. Conclusion and Limitations

16

11. Bibliography
12. Appendices

18

2. Introduction

Aided by rapid urbanization, the number of vehicles bought in Mumbai in 2015 was
over 2 million, representing a 10% growth rate from the previous year. 1 The Society of
Indian Automobile Manufacturers Association argued that positive consumer sentiment, new
launches, and higher disposable incomes are the primary causes for this enormous increase in
sales. 2 The rise in the number of vehicles brings its own set of problems to Mumbai, like
pollution and traffic, but perhaps the most important one is public parking.
Public parking is a vital cog in the function of the transportation system. It refers to
the parking of vehicles on the road, or off-road facilities, that are mandated by the
government of that city. The rising number of vehicles creates a huge demand for parking in
a city like Mumbai, but unfortunately, there exists a huge dearth in the supply of parking
spots. A study in 2015 reported that there exists only one parking spot for every 120 vehicles
in the city. 3 After receiving over 65 proposals, the Brihanmumbai Municipal Corporation
(BMC) has decided to create 4,700 more parking spots in Mumbai. 4
Economic demand and supply theory tells us that when there exists a dearth in supply
and excess demand, prices should be high. However, public parking prices in Mumbai have
historically been far too low. This has led to various interventions by the government, with
different prices being set for parking in Mumbai. The parking areas were categorized
according to wards, or areas of the city on the basis of the financial muscle of the area. 5
This could represent price discrimination the charging of different prices to different
consumers for the same good by the same provider 6 on the basis of their income. The
government feels that public parking would have a lower price elasticity of demand amongst
high income individuals, i.e. the quantity of parking spots they would demand wouldnt
change as much if the price was raised or lowered.
However, there is no substantial research that has evaluated the effect of these prices
set, to determine whether or not they are too low. It is interesting to note that private parking
prices are much higher than their government-set counterparts. The reason for this could be
due to the private parking companies valuing the opportunity cost the cost of producing the
next best alternative to that good of the parking spot to be much higher than the government
perceives. Furthermore, land prices in different areas of Mumbai arent the same, and the
hypothesis is that the government hasnt evaluated these different prices correctly, and that
the government-set price is too low. This has led to the belief that the price setting for public

1

Balachandar, G.. "Car sales hit record high in India, over 2 million units sold in 2015." The Hindu. 11 Jan.
2016. Web. 10 Jul. 2016. <http://www.thehindu.com/business/Industry/car-sales-hit-record-high-in-india-over2-million-units-sold-in-2015/article8092367.ece>
2
Ibid.
3
Mid-day.com. "Mumbai has one parking spot for every 120 vehicles." NDTV.com. 7 May 2012. Web. 15 Jun.
2016. <http://www.ndtv.com/mumbai-news/mumbai-has-one-parking-spot-for-every-120-vehicles-481214>
4
Sudhir Suryawanshi. "Mumbai to get 4,700 public parking slots soon | Latest News & Updates at Daily News
& Analysis." dna. 13 Jan. 2016. Web. 24 Aug. 2016. <http://www.dnaindia.com/mumbai/report-mumbai-to-get4700-public-parking-slots-soon-2165196>
5
Mahamulkar, Sujit. "Now, pay Rs 1,800 every month to night-park car on road outside your building in
Mumbai - Times of India." The Times of India. 15 Jan. 2016. Web. 15 Jun. 2016.
<http://timesofindia.indiatimes.com/city/mumbai/Now-pay-Rs-1800-every-month-to-night-park-car-on-roadoutside-your-building-in-Mumbai/articleshow/45736979.cms>
6
Walker, Jason. Monopoly Price Discrimination. Economics Developed Specifically for the IB Diploma.
By Sean Maley. N.p.: Pearson Baccalaureate, 2011. 210. Print.

4
parking in Mumbai is an example of government failure where the governments
intervention in the economy to correct a market failure creates inefficiency and leads to a
misallocation of scarce resources. 7
Thus, the effectiveness of the government policy on public parking will be analyzed
through the research question (RQ): To what extent are the prices set for public parking in
Mumbai an example of Government failure?

3. Methodology

In 2015, the BMC passed a new Pay and Park Policy whereby the public parking
rates would rise by 300% in Mumbai. 8 This was done in an attempt to promote parking in
lots rather on the streets. The authority decided to divide parking lots in Mumbai on the basis
of the average revenue that area generates from a particular slot during a specific time frame;
the busiest slots are in the A category, with C being the least busy slot.
However, the citizens in slot A were angered by this decision, with representatives
from 15 residential associations even threatening a 72-hour protest if the BMC didnt amend
the policy. 9 They claimed that some members of the A slot werent necessarily rich.
That some citizens were angered by the price hike, despite prices still being so much
lower than private ones was intriguing, and proved that there was enough scope for research
in this topic.
In order to answer the RQ, 35 pockets in Mumbai were surveyed, ensuring that prices
were collected for both private and public parking. Cluster sampling by area was used as a
technique because it enabled the comparison of results in different geographic regions.
Further, it ensured that the data was a representative sample of Mumbai as a whole, covering
slots A, B and C.
The secondary sources were data collected from newspapers and real-estate websites
about the rent price of flats and land from the same 10 pockets. Averages were used to
compare the two prices, along with the theory of opportunity cost to analyze the effectiveness
of the government-set price.
To analyze the RQ qualitatively, a questionnaire assessed how the people 85
citizens to be exact in all these pockets feel about the nature of the parking facilities, their
ease of access and their prices. This was done through the method of crowd sourcing an
online survey, wherein the takers were asked to forward the survey after completion.
Maintainers and owners of the various parking spots across the 35 pockets were also spoken
to.

7

N.a. "Government failure." Economicsonline.co.uk. n.d. Web. 18 Jul. 2016.

<http://www.economicsonline.co.uk/Market_failures/Government_failure.html>
8
mid-day. "Cost of parking on Mumbai's streets set to rise 300% - News." mid-day. 25 Jan. 2015. Web. 11 Jul.
2016. <http://www.mid-day.com/articles/cost-of-parking-on-mumbais-streets-set-to-rise-300/15884163>
9
The Indian Express. "South Mumbai residents up in arms against hiked parking rates." The Indian Express.
n.d. Web. 11 Jul. 2016. <http://indianexpress.com/article/cities/mumbai/south-mumbai-residents-up-in-armsagainst-hiked-parking-rates/>

a. Sampling Technique

Figure 1: Map of Areas Surveyed/Researched

6
Figure 1. shows the 35 areas across Mumbai that were covered for the purpose of this
investigation. The area spans from the southern tip of Mumbai, all the way to Juhu covering
a distance of 29.9 km. 10
The survey was taken by citizens of Mumbai living in the areas marked on the map
with the letter P. Furthermore, each of these areas was visited, wherein parking data was
collected via primary investigation. The participants of the survey had between 1-5 cars each.
The large number of areas surveyed thus increases the validity of the research,
thereby strengthening the claims derived from the research.

4. Demand and Supply

a. Price Elasticity of Demand (PED)
The price elasticity of demand is calculated as the ratio of percentage change in the
quantity demanded to the percentage change in price -

%" $%
%" &

The factors affecting the price elasticity of demand of a good are: 11

4.
5.
6.
7.
8.

Number of substitutes
Percentage of Income
Luxury or necessity
Addictive nature
Time to respond

Given that public parking has just the one substitute in private parking, that it makes up a
low proportion of most peoples income, and that it is a necessity for all those with a car, one
could assume that it has a low price elasticity of demand.
However, one has to apply the theory to the context of public parking in Mumbai. In
January 2015, the BMC decided to raise the rates for public parking by 300%. 12 Claims from
the opposition party were that the new price would be too high for consumers to afford,
which would result in a lower quantity demanded for parking. 13 Since there is no way to
numerically determine the exact quantity demanded for parking in Mumbai, the survey
conducted attempted to assess the impact of this change on consumer sentiments.

10

N.a. "Map from Juhu Beach to Nariman Point." Distancesfrom.com. n.d. Web. 24 Aug. 2016.
<www.distancesfrom.com/map-from-Juhu-Beach-to-Nariman-Point-Mumbai/MapHistory/63112.aspx>
11
Walker, Jason. Elasticity Price Elasticity of Demand. Economics Developed Specifically for the IB
Diploma. By Sean Maley. N.p.: Pearson Baccalaureate, 2011. 80. Print.
12
mid-day. "Cost of parking on Mumbai's streets set to rise 300% - News." mid-day. 25 Jan. 2015. Web. 24
Aug. 2016. <http://www.mid-day.com/articles/cost-of-parking-on-mumbais-streets-set-to-rise-300/15884163>
13
Ibid.

7
Figure 2. shows the results of the question that aimed to determine this impact. 14
Consumers were asked how they felt when the BMC raised the parking rates on a scale of 15; with 1 being not affected and 5 being very angry.

Figure 2: Price Elasticity of Demand

35.4% - the largest percentage group - of the people said they were not affected by this
change, while 34.1% said they were somewhat affected.
In order to quantify the results of this survey in terms of PED, a scale had to be
constructed. Given that the lowest possible score that a participant could give was 1, this
score would translate to a PED of 0 perfectly inelastic. Further, the highest possible score
must approach a perfectly elastic PED. On this basis, the following scale was formed:
Table 1: Corresponding PED to a Rating

Rating

Corresponding PED

Explanation

1
1 < < 3
3
3 < < 5
5

Perfectly inelastic
Inelastic
Unitary elastic
Elastic
Perfectly elastic [tending towards]

0 < < 1
1
1 <
PED

The mean rating was 2.256, indicating that the PED of public parking was somewhere
between 0 and 1 inelastic.


14

Google Docs. "Extended Essay Data Collection Survey." Google Docs. n.d. Web. 24 Aug. 2016.
<https://docs.google.com/forms/u/0/d/e/1FAIpQLSey31dItbzrDt13OYJYo2iXanTNLsG8n2F_IVoS1cFz6rWzA
Q/viewform?usp=embed_facebook>

b. Price Elasticity of Supply (PES)

The price elasticity of supply is calculated as the ratio of percentage change in the
quantity supply to the percentage change in price -

%" $8

15

%" &

The main factor to consider for the PES of public parking is the amount of time to
respond following a change in price.
Given that parking spots cannot be manufactured at a whim, and it would only be in
the very long run when new parking spots could be formed, it can be concluded that public
parking has a low PES it is supply inelastic. In fact, for the short run, it can be assumed that
the supply for public parking is perfectly inelastic as producers cannot create more parking
spots at will, given a change in price.

c. Quantity Demanded and Supplied

According to a survey in 2015, there exists 2,300,000 cars in Mumbai, but only
12,000 parking spots 16; the ratio of cars to parking spots is approximately 192:1. This leads
to the understanding that there is a severe dearth of supply of parking spots, a sentiment
shared by the Deputy Chief Minister for Roads and Traffic in Mumbai. 17
Figure 3. shows the response of consumers when asked how crowded the public parking
facilities in Mumbai were. They were asked to rate the level on a scale of 1-5 with 1 being
not crowded and 5 being very crowded.
It is clear that the majority of the people felt that the facilities were very crowded
47.6% rated with a score of 5.

15

Walker, Jason. Elasticity

Price
Elasticity
of Supply.
Economics
Developed
Specifically for the IB
Figure
3: How
Crowded
is Public
Parking
in Mumbai?
Diploma. By Sean Maley. N.p.: Pearson Baccalaureate, 2011. 92. Print.
16
mid-day. "There are 23 lakh vehicles in Mumbai, but only 12,000 parking spots - News." mid-day. 12 Jun.
2015. Web. 24 Aug. 2016. <http://www.mid-day.com/articles/there-are-23-lakh-vehicles-in-mumbai-but-only12000-parking-spots/16285188>
17
Ibid.

9
The mean rating was 3.99. One can thus conclude that on average all the parking
spots are filled in the facilities that exist. Furthermore, given that the number of cars far
exceed the number of parking spots, one can conclude that the quantity of spots demanded
also far exceeds the quantity of spots supplied.

d. Demand and Supply Diagram

Using the given data: that public parking in Mumbai is demand inelastic, supply
inelastic, and its quantity demanded exceeds its quantity supplied, one can create a rough
demand and supply diagram, as shown below in Figure 4:
9 represents the equilibrium price for parking, as determined by the market forces.
: represents the government set price for parking. The forces of demand and supply dictate
that when the quantity demanded (< ) exceeds the quantity supplied (= ), then the price-set

(9 ) is lower than the equilibrium price (9 ).

Figure 4: Demand and Supply for Parking in Mumbai

Preliminary analysis has thus led to the conclusion that the government-set price for
parking is lower than the equilibrium price i.e. a price ceiling has been imposed; however,
it remains to be seen as to whether or not this set-price is beneficial and justifiable.

10

5. Welfare Analysis

The government authoritys (BMCs) decision to impose a price-ceiling would have
intended to benefit consumers, seeing as the producer of the parking spots are themselves. A
lower price would encourage consumers to park more as parking is more affordable.
In theory, whenever a regulatory authority imposes a price that is different from the
equilibrium price, there is a deadweight loss, i.e. the loss of utility to participants in the
market. 18 This situation can be better understood through a demand and supply diagram,
before and after the price-ceiling was imposed.

a. Before the Price Ceiling

Figure 5: Consumer and Producer Surplus before Price-ceiling

Figure 5. shows the consumer and producer surplus before the imposition of the
price-ceiling. Area is the consumer surplus, and area is the producer surplus. The
total surplus the sum of the two is given by area + . The imposition of the ceiling
would theoretically reduce this surplus, as allocative efficiency is removed.

18

Walker, Jason. Government Intervention Tax Incidence: PED Similar to PES. Economics Developed
Specifically for the IB Diploma. By Sean Maley. N.p.: Pearson Baccalaureate, 2011. 100. Print.

11

b. After the Price Ceiling

However, as one can see in Figure 6. below which shows the consumer and
producer surplus after the ceiling the total surplus remains unchanged. Area + in
Figure 5. is the same as area A + A + A .

Figure 6: Consumer and Producer Surplus after the Price-ceiling

This can be explained by the perfectly inelastic supply curve. Deadweight loss only
occurs when the size of the market shrinks. However, as the supply curve is inelastic, the
benefit lost by producers as a result of the change will be transferred to the consumers. The
quantity of parking spots will always be at = . Thus, not only do the consumers have to pay a
lower price for parking, but there is no loss of welfare as a result of this measure the
deadweight loss is zero. This seems to validate the governments decision to set a priceceiling.
However, this diagram is a short term one. In the very long run, as more parking spots
are created, the supply will not be perfectly inelastic. As the supply curve becomes less and
less inelastic, the deadweight loss will increase as a result of the price-ceiling. However, for
the purpose of the short run, this decision seems effective on preliminary analysis.

12

6. Revenue Analysis

For any firm operating in a competitive market, there exists the shut-down rule: if
the price (P) of the firm does not cover its average variable costs (AVC), then the firm will
shut down in the short run. 19 In other words, if the total variable cost (TVC) of a given firm
exceeds its total revenue (TR) for a given point in time, it would shut down.
If one considers the BMC to be a firm, operating in a market where it has the power to
set prices, then for it to shut down, the total price it pays to the labourers manning the parking
areas (TVC) would have to exceed its total amount of money it receives from all parking
spots (TR).
Perhaps the biggest determinant in the revenue generated for the BMC would be the
price it has set for public parking in Mumbai. If the price ceiling affected the total revenue of
the BMC such that it should theoretically shut-down, then the ceiling would be detrimental.
A report in 2015 stated that the BMCs total revenue for a particular month in time
with 43 parking spots was . 50,00,000 ( $75,000), and the amount it paid to its
labourers (TVC) was . 1,00,00,000 ( $150,000 ). 20 Furthermore, if the last 30
months were taken into account, the TR was . 15,00,00,000 ( $2,240,000), whilst
the TVC was . 36,30,00,000 ( $5,420,000). 21 This data was confirmed by another
independent report. 22
In both cases, the TVC far exceeds the TR. Given that the provision of public
parking is almost considered mandatory for any civic authority, the BMC couldnt possibly
shut down. However, the fact that TVC far exceeds the TR is indicative of one thing: the
price-set seems to be too low.
Interestingly, the BMCs expected total revenue was much higher than what it
received. 23 For example, in the case of the monthly earnings, the BMC expected to generate
. 1,14,00,000 ( $170,000), which would exceed the TVC. This is strange, as the
disparity between the expected TR and actual TR is huge. However, the validity of these
claims by the BMC was strengthened by a vigilance report suggesting a high level of
corruption in the manning of these stalls. The BMC was, in April 2015, cheated of
. 4,00,00,000 ( $600,000) only in one of the 15 wards hosting the 43 spots. 24 25

19

Blink, Joceyln. Costs, revenues, and profits Profit Theory. Economics Course Companion. By Ian
Dorton. N.p.: Oxford University Press, 2011. 96. Print.
20
Geeta Desai. "BMC pays staff Rs 1 crore to man parking lots, earns just Rs 50 lakh | Latest News & Updates
at Daily News & Analysis." dna. 11 Apr. 2015. Web. 26 Aug. 2016. <http://www.dnaindia.com/mumbai/reportbmc-pays-staff-rs-1-crore-to-man-parking-lots-earns-just-rs-50-lakh-2076531>
21
Ibid.
22
mid-day. "Mumbai: BMC loses lakhs on its pay-and-park lots - News." mid-day. 3 May 2015. Web. 26 Aug.
2016. <http://www.mid-day.com/articles/mumbai-bmc-loses-lakhs-on-its-pay-and-park-lots/16182163>
23
Ibid.
24
http://www.hindustantimes.com/. "BMC cheated of Rs 3.87 crore, two contractors
blacklisted." http://www.hindustantimes.com/. 24 Jun. 2016. Web. 26 Aug. 2016.
<http://www.hindustantimes.com/mumbai/bmc-cheated-of-rs-3-87-crore-two-contractors-blacklisted/story0N9tMkNQlBtLZbbi9CSVgO.html>
25
The Indian Express. "BMC opposition leader alleges scam of Rs 4 crore in pay-and-park project." The Indian
Express. n.d. Web. 26 Aug. 2016. <http://indianexpress.com/article/cities/mumbai/bmc-opposition-leaderalleges-scam-of-rs-4-crore-in-pay-and-park-project/>

13

This suggests that the price-ceiling may not be directly responsible for the drop in
revenue, and that without the prevalent corruption, the BMC would be able to generate a
large enough total revenue.
However, the emergence of this black market is a direct consequence of the priceceiling, as will be discussed. Furthermore, given that the corruption may not be fixed in the
time to come, it might have been wise to not lower the price for parking.

7. Emergence of a Black Market

A black market is the illegal free-market that flourishes due to the scarcity of
consumer goods. 26 In the case of public parking, the government imposed maximum price
caused an excess in supply (As seen in Figure.4). At quantity = , the demand curve
intersection is at price 9 . However, the government-set price is : . Due to the excess
supply, sellers would begin to sell the parking spots to the consumers who are willing to pay
a price higher than 9 , thereby creating a black market.
The emergence of a black market for public-parking has been documented by various
newspapers, as well as online consumer forums. A BMC opposition leader stated in a report
that for a parking spot priced at Rs.80, sellers were asking consumers to pay Rs.200
claiming that there exists a dearth in supply. 27 Other reports claimed prices went as high as
Rs.300 a 275% increase from the government-set price. 28 BMC regulations state that all
public parking spots must have a board that displays official prices; 29 however, numerous
consumers have complained to the government, saying that sellers dont display the boards,
and thereby lie about the set-prices. 30 Furthermore, it is alleged sellers who have taken
government tenders have entered a collusion whereby they all charge prices above the
equilibrium price. 31
The survey conducted by the author asked participants as to whether or not they have
been charged a price above equilibrium by sellers, the results of which are displayed below:

26

BusinessDictionary.com. "What is black market? definition and meaning." BusinessDictionary.com. n.d.

Web. 5 Sept. 2016. <http://www.businessdictionary.com/definition/black-market.html>
27
The Indian Express. "BMC opposition leader alleges scam of Rs 4 crore in pay-and-park project." The Indian
Express. n.d. Web. 5 Sept. 2016. <http://indianexpress.com/article/cities/mumbai/bmc-opposition-leaderalleges-scam-of-rs-4-crore-in-pay-and-park-project/>
28
Geeta Desai. "3 contractors cheat BMC of deposit money for pay-and-park lots | Latest News & Updates at
Daily News & Analysis." dna. 5 Apr. 2016. Web. 5 Sept. 2016. <http://www.dnaindia.com/mumbai/report-3contractors-cheat-bmc-of-deposit-money-for-pay-and-park-lots-2198274>
29
N.a. "." Mcgm.gov.in. 15 May 2014. Web. 24 Jul. 2016.
<http://www.mcgm.gov.in/irj/portalapps/com.mcgm.tenders/docs/AC_17011426_260114.pdf>
30
View Articles. "Overpay to park." RTI INDIA- Right to Information. n.d. Web. 5 Sept. 2016.
<http://www.rtiindia.org/forum/27168-overpay-park.html>
31
N.a. "mcgm pay and park Complaints." Complaintboard.in. n.d. Web. 5 Sept. 2016.
<http://www.complaintboard.in/complaints-reviews/mcgm-pay-and-park-l110527.html>

14

Figure 7: Negotiation of rates with consumers

Figure 8: Charging of prices higher than equilibrium

Figure 7. asked consumers if rates for parking were ever negotiated with them an
indicator of a seller trying to charge a higher price. 50% of the participants said that it had
happened with them a sufficiently high number.
Figure 8. asked consumers if they had been asked to pay a price higher due to reasons
such as dearth in supply or lack of space. 47.6% said yes again, a sufficiently high number.
Online-forums have reported these incidences in various areas of Mumbai, showing
that it is spread through Mumbai. 32 Thus, the emergence of the black-market seemingly
negates the entire purpose of a price-ceiling.
The black-market also creates a loss in government revenue. Sellers charge a higher
price than equilibrium, increasing their revenue. However, this increased revenue doesnt go
into the hands of the government sellers only pay the government the share of a revenue
earned through equilibrium price charged, and pocket the difference. Had the government
charged the higher price themselves, their revenue would have increased they may have
then been able to cover their TVC.

Figure 9: How expensive do you feel prices for public parking are?

32

Ibid.

15
Figure 9. illustrates how expensive consumers felt prices for public parking were:
The x-axis represents a scale from 1-5. A score of 1 would imply they feel the prices are
extremely cheap, whilst 5 would mean prices are extremely expensive. The mean rating was
2.90, indicating consumers felt prices were relatively cheap. Granted that this depends on the
wealth of the people in the sample, but a size of 82 people from over 40 areas is a diverse
sample.
Furthermore, primary research conducted showed that in all parking lots where prices
were higher than equilibrium, the spaces were still full. This shows that due to the extreme
inelasticity for demand, consumers are still willing to park their vehicles. In fact, at Juhu, two
parking spots opposite each other were charging different prices, and both were full, showing
that consumers didnt mind paying a slightly higher price.
These findings further indicate that the government-set price might be too low, and
that revenue could increase and eliminate a black-market if prices were higher.

8. Opportunity Cost
To determine whether or not the government has correctly evaluated the opportunity
cost of setting up public parking spots, the rental prices were compared for all the areas
surveyed. The data was collected from an online property rates website. 33 The prices are for
the quarter from April-June of 2016, and are the per-day cost of rent in /. . 34
Figure 10. shows a comparison of the prices for areas classified under Ward A by the
BMC:

Figure 10: Average Rent Price Per Day (Rs/Sq. ft)

33

N.a. "Property Rates in Mumbai | Property Price Trends in Mumbai | MagicBricks." Magicbricks.com. n.d.
Web. 12 Aug. 2016. <http://www.magicbricks.com/Property-Rates-Trends/ALL-RESIDENTIAL-rates-inMumbai#>
34
See Appendix 2

16
The x-axis represents the price per day (/. ) whilst the y-axis represents the
area surveyed. There is a huge difference in the rent cost in these areas. The difference
between the highest and lowest price is . ( $1.152) per day. Averaged to a
month, and this accumulates to a difference of . ( $34.526), a rather large
difference. Furthermore, the standard deviation for these prices showing the deviation of
the prices from the mean value is 24.24, an incredibly high numbers.
Despite this large difference in rental cost, the public parking price set by the
government for these areas is the same. Thus, the government hasnt correctly evaluated the
opportunity costs of setting-up parking spots in each of these areas correctly. Experts such
as a member of the World Banks Mumbai Transformation Support Unit have also
recommended that that the parking rates be revised based on real estate value. 35 However,
the government has paid no heed to these suggestions.

9. Comparison to Private Parking

Figure 11. illustrates how expensive consumers felt prices for private-parking were,
on a scale from 1 (very-cheap) to 5 (very-expensive).

Figure 11: How expensive do you feel prices for private parking are?

The mean rating was 3.62, indicating consumers felt prices were relatively expensive.
Compared to the 2.90 rating for public parking, it is obvious that consumers felt privateparking prices were more expensive. This was testified by primary research, wherein the
researcher found that in all areas surveyed, the private-parking prices were considerably
higher.

35

What Option Do We Have. "The Mumbai Project: Parking a problem, 21 times

over." http://www.hindustantimes.com/. 6 Dec. 2007. Web. 17 Sept. 2016.
<http://www.hindustantimes.com/india/the-mumbai-project-parking-a-problem-21-times-over/storyQThZEfPdrJqjHt2HbtwH3H.html>

17
Figure 12. illustrates how crowded consumers felt private-parking lots were, on a
scale from 1-5.

Figure 12: How crowded are the private parking facilities?

The mean rating was 3.80, indicating that consumers felt the lots were very crowded.
If we compare the ratings given to public and private parking on the basis of how
expensive and/or crowded they are, the results are interesting.
Table 2: Public v/s Private Parking

Rating

Public Parking

Private Parking

How expensive?
How crowded?

2.90
3.99

3.62
3.80

Ratio (Expensive : Crowded)

0.73

0.95

Despite being rated as much more expensive, private parking facilities were not much
less crowded compared to their private counterparts. This indicates that consumers at privateparking facilities were not inhibited by the prices, owing to the dearth of supply of parking
spots.
Thus, had the government-set price for public parking been higher to match their
private-counterparts it seems as if the spots would be as crowded, thereby increasing
government revenue.

18

10.

Conclusion and Limitations

Through primary and secondary research, the research question To what extent are
the prices set for public parking in Mumbai an example of government failure? has been
thoroughly investigated.
Preliminary analysis showed that the government had imposed a price-ceiling, owing
to the huge disparity between the quantity of parking spots demanded and supplied.
Furthermore, due to the highly inelastic supply of parking spots, welfare analysis showed
there was no deadweight loss as a result of government intervention. However, a key
assumption in the model graphed was that the supply was perfectly inelastic. This would only
hold true for the short run. As time passes, the government can create more parking spots,
decreasing the inelasticity of supply and increasing deadweight loss. Furthermore, the
inelasticity of demand was calculated using a scale-rating system, which has its own flaws.
Since there is no way to numerically determine the exact elasticity of demand, the paper was
written on the basis of it being from 0 1.
Furthermore as with any price-ceiling the BMC suffered a huge loss in revenue.
While claims exist that this loss in revenue exists due to corruption, it is hard to prove, and
remains an unanswered question in this paper. As of July 2016, the TVC exceeded the TR, a
condition for shut-down. The black-market created as a result of the price-ceiling served as a
hindrance to all consumers, negating the effect of a lower price. Research showed sellers
charging over 275% of the government-set price. Perhaps the only way to negate the blackmarket would be to raise the price. However, this is yet another assumption, and can only be
proved if the government actually raises the price.
Research showed that the government hadnt correctly valued the opportunity cost of
creating parking spots, with prices for parking being the same in areas where the average rent
price per day differed by a huge margin. Furthermore, private parking prices were
significantly higher than their public counterparts. However, this could also be due to private
companies being far more profit-oriented than the government.
There are some limitations in the collection of data. The survey asked consumers to
rate how crowded spots were and how expensive prices were. These are very subjective
indicators, and could also depend on the income of the consumers. In order to counterbalance
this, consumers were asked about how many cars they own, in order to assess the range of
income, showing the sample had a diverse range. The area studied strengthens the research
a large part of Mumbai was covered, through secondary sources, the survey and primary
collection.
Thus, with all these factors being considered, the hypothesis was deemed to be correct
the government-set price for parking was too low. The inability to allocate the scarce
resources by the government is a clear example of government failure.

19

11.

Bibliography

Balachandar, G. "Car sales hit record high in India, over 2 million units sold in 2015." The
Hindu. 11 Jan. 2016. Web. 10 Jul. 2016. http://www.thehindu.com/business/Industry/carsales-hit-record-high-in-india-over-2-million-units-sold-in-2015/article8092367.ece
Blink, Joceyln. Costs, revenues, and profits Profit Theory. Economics Course
Companion. By Ian Dorton. N.p.: Oxford University Press, 2011. 96. Print.
BusinessDictionary.com. "What is black market? definition and
meaning." BusinessDictionary.com. n.d. Web. 5 Sept. 2016.
http://www.businessdictionary.com/definition/black-market.html
Desai, Geeta. "3 contractors cheat BMC of deposit money for pay-and-park lots | Latest
News & Updates at Daily News & Analysis." dna. 5 Apr. 2016. Web. 5 Sept. 2016.
http://www.dnaindia.com/mumbai/report-3-contractors-cheat-bmc-of-deposit-money-forpay-and-park-lots-2198274
Desai, Geeta. "BMC pays staff Rs 1 crore to man parking lots, earns just Rs 50 lakh | Latest
News & Updates at Daily News & Analysis." dna. 11 Apr. 2015. Web. 26 Aug. 2016.
http://www.dnaindia.com/mumbai/report-bmc-pays-staff-rs-1-crore-to-man-parking-lotsearns-just-rs-50-lakh-2076531
Google Docs. "Extended Essay Data Collection Survey." Google Docs. n.d. Web. 24 Aug.
2016.
https://docs.google.com/forms/u/0/d/e/1FAIpQLSey31dItbzrDt13OYJYo2iXanTNLsG8n2F_
IVoS1cFz6rWzAQ/viewform?usp=embed_facebook
Hindustan Times. "BMC cheated of Rs 3.87 crore, two contractors
blacklisted." http://www.hindustantimes.com/. 24 Jun. 2016. Web. 26 Aug. 2016.
http://www.hindustantimes.com/mumbai/bmc-cheated-of-rs-3-87-crore-two-contractorsblacklisted/story-0N9tMkNQlBtLZbbi9CSVgO.html
Mahamulkar, Sujit. "Now, pay Rs 1,800 every month to night-park car on road outside your
building in Mumbai - Times of India." The Times of India. 15 Jan. 2016. Web. 15 Jun. 2016.
http://timesofindia.indiatimes.com/city/mumbai/Now-pay-Rs-1800-every-month-to-nightpark-car-on-road-outside-your-building-in-Mumbai/articleshow/45736979.cms
mid-day. "Cost of parking on Mumbai's streets set to rise 300% - News." mid-day. 25 Jan.
2015. Web. 11 Jul. 2016. http://www.mid-day.com/articles/cost-of-parking-on-mumbaisstreets-set-to-rise-300/15884163
mid-day. "Cost of parking on Mumbai's streets set to rise 300% - News." mid-day. 25 Jan.
2015. Web. 24 Aug. 2016. http://www.mid-day.com/articles/cost-of-parking-on-mumbaisstreets-set-to-rise-300/15884163
mid-day. "Mumbai: BMC loses lakhs on its pay-and-park lots - News." mid-day. 3 May
2015. Web. 26 Aug. 2016. http://www.mid-day.com/articles/mumbai-bmc-loses-lakhs-on-itspay-and-park-lots/16182163

20
mid-day. "There are 23 lakh vehicles in Mumbai, but only 12,000 parking spots News." mid-day. 12 Jun. 2015. Web. 24 Aug. 2016. http://www.mid-day.com/articles/thereare-23-lakh-vehicles-in-mumbai-but-only-12000-parking-spots/16285188
Mid-day.com. "Mumbai has one parking spot for every 120 vehicles." NDTV.com. 7 May
2012. Web. 15 Jun. 2016. http://www.ndtv.com/mumbai-news/mumbai-has-one-parkingspot-for-every-120-vehicles-481214
N.a. "." Mcgm.gov.in. 15 May 2014. Web. 24 Jul. 2016.
http://www.mcgm.gov.in/irj/portalapps/com.mcgm.tenders/docs/AC_17011426_260114.pdf
N.a. "Government failure." Economicsonline.co.uk. n.d. Web. 18 Jul. 2016.
http://www.economicsonline.co.uk/Market_failures/Government_failure.html
N.a. "Map from Juhu Beach to Nariman Point." Distancesfrom.com. n.d. Web. 24 Aug. 2016.
www.distancesfrom.com/map-from-Juhu-Beach-to-Nariman-PointMumbai/MapHistory/63112.aspx
N.a. "mcgm pay and park Complaints." Complaintboard.in. n.d. Web. 5 Sept. 2016.
http://www.complaintboard.in/complaints-reviews/mcgm-pay-and-park-l110527.html
N.a. "Property Rates in Mumbai | Property Price Trends in Mumbai |
MagicBricks." Magicbricks.com. n.d. Web. 12 Aug. 2016.
http://www.magicbricks.com/Property-Rates-Trends/ALL-RESIDENTIAL-rates-inMumbai#
Sudhir Suryawanshi. "Mumbai to get 4,700 public parking slots soon | Latest News &
Updates at Daily News & Analysis." dna. 13 Jan. 2016. Web. 24 Aug. 2016.
http://www.dnaindia.com/mumbai/report-mumbai-to-get-4700-public-parking-slots-soon2165196
The Indian Express. "BMC opposition leader alleges scam of Rs 4 crore in pay-and-park
project." The Indian Express. n.d. Web. 26 Aug. 2016.
http://indianexpress.com/article/cities/mumbai/bmc-opposition-leader-alleges-scam-of-rs-4crore-in-pay-and-park-project/
The Indian Express. "BMC opposition leader alleges scam of Rs 4 crore in pay-and-park
project." The Indian Express. n.d. Web. 5 Sept. 2016.
http://indianexpress.com/article/cities/mumbai/bmc-opposition-leader-alleges-scam-of-rs-4crore-in-pay-and-park-project/
The Indian Express. "South Mumbai residents up in arms against hiked parking rates." The
Indian Express. n.d. Web. 11 Jul. 2016. http://indianexpress.com/article/cities/mumbai/southmumbai-residents-up-in-arms-against-hiked-parking-rates/
View Articles. "Overpay to park." RTI INDIA- Right to Information. n.d. Web. 5 Sept. 2016.
http://www.rtiindia.org/forum/27168-overpay-park.html

21
Walker, Jason. Elasticity Price Elasticity of Demand. Economics Developed
Specifically for the IB Diploma. By Sean Maley. N.p.: Pearson Baccalaureate, 2011. 80.
Print.
Walker, Jason. Elasticity Price Elasticity of Supply. Economics Developed Specifically
for the IB Diploma. By Sean Maley. N.p.: Pearson Baccalaureate, 2011. 92. Print.
Walker, Jason. Government Intervention Tax Incidence: PED Similar to PES. Economics
Developed Specifically for the IB Diploma. By Sean Maley. N.p.: Pearson Baccalaureate,
2011. 100. Print.
Walker, Jason. Monopoly Price Discrimination. Economics Developed Specifically for
the IB Diploma. By Sean Maley. N.p.: Pearson Baccalaureate, 2011. 210. Print.
What Option Do We Have. "The Mumbai Project: Parking a problem, 21 times
over." http://www.hindustantimes.com/. 6 Dec. 2007. Web. 17 Sept. 2016.
http://www.hindustantimes.com/india/the-mumbai-project-parking-a-problem-21-timesover/story-QThZEfPdrJqjHt2HbtwH3H.html

22

12.

Appendices
Appendix 1 EE Data Collection Survey

23

24

25

Appendix 2 Land Rental Prices

Area

Average Rent Price (Rs/Sq. ft)

April-June 2016

Andheri East
Andheri West
Bandra East
Breach Candy
Byculla
Chembur
Church Gate
Colaba
Cuffe Parade
Cumbala Hill
Dadar East
Dadar West
Fort
Goregaon East
Goregaon West
Juhu
Juhu Beach Area
Lower Parel
Mahalakshmi
Malabar Hill
Marine Drive
Matunga East
Matunga West
Mulund East
Mulund West
Nariman Point
Nepean Sea
Road
Opera House
Parel
Prabhadevi
Peddar Road
Santacruz East
Santacruz West
Sewri
Shivaji Park
Tardeo
Worli

43
48
63
126
59
41
111
96
124
125
67
70
122
37
38
64
80
79
104
134
N/A
75
66
32
34
166
133

% Change
From Last
Quarter
0%
2%
5%
0%
9%
3%
0%
5%
2%
1%
3%
1%
1%
0%
0%
4%
1%
0%
0%
1%
N/A
6%
0%
0%
0%
1%
5%

100
65
120
121
50
72
83
73
93
82

3%
6%
8%
4%
0%
1%
2%
1%
1%
7%

P/N

N
P
P
P
N
N
N
P
P
P

N
N

P
N/A
P

P
P
N
N
N
N
N
P
P
P
N

26