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Transportation Market Failure in Singapore

1.0 Introduction

For an economy to be efficient, there is a need to ensure markets are free. However, issues such as information failure, market control, and public goods in countries worldwide have intensified cases of market failure. Market failure is the inefficient distribution of goods and services in a free market, often leading to social inequality, environmental degradation, and economic inefficiencies. These negative impacts of market failure are often experienced in developing economies with weak Institutions and limited resources (Wu and Ramesh, 2014). As a result, governments formulate intervention policies to combat the adverse effects of market failure in the economy. These intervention policies include the deployment of subsidies, trade restrictions, and taxation, and they play a key role in enhancing equity, sustainability, and efficiency. Therefore, this paper will examine the market failure in transportation in Singapore and provide insight into the various government interventions the Singapore government has adopted to combat market failure and ensure sustainability and efficiency in the economy.

1.1 Singapore Background

Singapore is an island country situated in Southeast Asia and is made up of 63 satellite islands, mainland, and outlying islets. Its capital city is Singapore city. The country gained independence from Malaysia in 1965 and has become a commercial and financial hub. The country is also considered the third most densely populated country in the world, with a population of 5.7 million people. Besides, the official languages in Singapore are Malay, English, Tamil, and Mandarin, mainly due to its multicultural population (Mo et al., 2021). Despite Singapore being a small-sized country, the country has revolutionized its markets, promoted sustainability, improved trading activities, and put a strong emphasis on innovation which has led it to be regarded as one of the wealthiest countries in the world with a high standard of living. Besides, Singapore’s efficient business environment enabled the country to acquire an economic freedom score of 88.8 and the sixth least corrupt country in the world. However, Singapore has its challenges, mainly market failures, and one has hit Singapore’s transportation sector.

2.0 Transportation Challenge in Singapore

2.1 Factors that Lead to market failure

Singapore’s growth is attributed to its pro-business environment, low tax rates, and effective transportation system. However, its transportation system experiences several challenges, mainly due to its land use planning which involves allocation and regulations of Land for different purposes such as residential, commercial and transportation. In Singapore’s case, the country has planned its urban areas to have concentrated employment hubs and commercial centres, which has resulted in high population density under a limited land area (Wu and Ramesh, 2014). As stated, Singapore is a pro-environment business hub and has been boosted by the country’s transportation sector, ensuring the country’s workforce wellbeing is met, and the economy is enhanced. However, market failures in this sector have made it difficult for social equity and environmental sustainability to be enhanced.

2.1.1 Population density

Urban planning is the process of developing and designing urban areas to meet the needs of a community. Despite urban planning meeting societal needs, it is inherently political, whereby numerous stakeholders compete for power dynamics and fulfilling their interests. Take Singapore, for instance, government agencies are responsible for urban planning, and their policies are significantly top-down (Tedjopurnomo et al., 2022). While this model has been a success in Singapore by resulting in economic growth and development through the development of commercial and employment hubs in urban areas, its formulation and implementation have not fully integrated citizen participation resulting in policies not addressing environmental and social concerns in full (Tedjopurnomo et al., 2022). For example, Singapore is a country with a high population density, and the approach to land use planning adopted by the country prioritized efficient land use and economic development without fully considering the implications of transportation planning to the environment and society. As a result, the high population concentration in a small area increased the demand for transportation, which has resulted in traffic congestion, longer travel time and decreased transportation efficiency.

2.1.2 Increased Demand for Cars.

The transportation system in Singapore has adopted market-oriented governance, where economic incentives and market mechanisms play a huge role in controlling congestion and car ownership. For instance, the government of Singapore has embraced the COE system whereby car ownership is limited by expensive permits resulting in the high cost of car ownership, making private cars a luxury (Wang et al., 2020). As a result, the majority of households in Singapore purchase cars mainly because they are seen as a symbol of success, and they enhance better mobility and reliable transportation. Despite the COE system limiting the number of car owners in the short term, it has encouraged the majority of households to purchase cars in the long term, which results in congestion, air pollution and social inequalities (Wang et al., 2020). Besides, this is supported by a 4% increment in car ownership 8n Singapore in the last few years and is projected to increase by 5% in 2023 (Theseira, 2020). Also, this increment in car ownership is a result of inefficiencies experienced in public transportation where there is overcrowding and waiting for tike has increased, especially during peak hours.

2.1.3 Limited Land

In addition, Singapore is a small country with limited Land available, and its land use planning has solely focused on economic development and has ignored the need to balance transportation infrastructures and economic growth (Tjoe, 2022). In other words, Singapore has heavily planned their cities to be economic and commercial hubs without strongly focusing on transportation infrastructure (Davies, 2022). As a result, the country has experienced transportation market failure as it faces challenges in meeting the growing demand for transportation infrastructure and services. Therefore, the city incurs market failures such as inefficiencies, air pollution, and congestion.

2.2 Consequences of Transportation market failure

2.2.1 Traffic Congestion

One of the major consequences of transportation market failure in Singapore is traffic congestion caused by increasing population density, limited size area, and increased car demands. According to Tjoe (2022), the traffic volume in Singapore hit around 95% of pre-Covid levels despite the easing of Covid-19 pandemic restrictions. Besides, Davies (2022) further states that the average time it takes to travel during peak hours increased by 60% compared to off-peak hours in 2021, negatively impacting workforce productivity and fuel consumption (Theseira, 2020). With increased traffic congestion in Singapore, it has been reported that the congestion costs the economy around seven billion dollars annually.

2.2.2 Pollution

Apart from traffic congestion, transportation market failure has a negative externality on Singapore, such as air pollution. The air pollution or emission of air pollutants from transpiration vehicles has increased due to a combination of population density, increased demand for cars, and limited size area in Singapore and has been detrimental to both the environment and human wellbeing (Air Quality, 2023). The main pollutants from car emissions are sulphur dioxide, and nitrogen oxides, which harm human wellbeing by causing issues such as lung cancer. In addition, it is reported that the transport sector in Singapore contributes to 30% of greenhouse gas emissions.

2.2.3 Economic Costs

Singapore has a limited area and a high population density, which negatively impacts its economy. The ever increasing demand for cars increases traffic congestion, leading to higher fuel consumption and longer commute time, impacting the productivity of commuters (Mo et al., 2021). Also, increased traffic causes environmental issues, which is costly to the economy in attracting trade and investment from investors that value environmental sustainability. In other words, there are economic costs of transportation market failure, including reduced workforce productivity, which impacts the economy negatively (Yeo, 2022). For instance, due to the poor transportation system, Singapore experiences an economic loss of 6.7 billion dollars annually.

2.2.4 Safety Risk

The main consequence of transport market failure is traffic congestion, which has significantly increased the number of accidents in Singapore. In most cases, traffic congestion makes drivers act recklessly and lack the visibility to manage to stop distance which often results in accidents. In the case of Singapore, there has been an increment in the number of accident cases as a result of traffic congestion (Tan and Taeihagh, 2021). For instance, a terrible accident involving twelve cars occurred during peak hour traffic on Ayer Rajah Expressway in 2020, causing deaths and injuries to several people (Tedjopurnomo et al., 2022). Also, the increased usage of transportation infrastructure, such as roads, has made it difficult for Singapore to perform adequate maintenance and adopt appropriate safety measures, which has resulted in accidents. For example, several deaths and injuries were recorded in 2017 when a Nicoll Highway in Singapore collapsed due to poor maintenance.

3.0 Government Interventions to Combat the market failure

Western governance has been shaped by governance theories such as social contract theory, classical liberal theory and public choice theory. In other words, these theories have influenced how governments operate, including formulating and implementing transportation policies to combat market failure (Ward, 2014). As stated, classical liberal theory shapes governance by emphasizing limited government intervention, individual freedom and free markets (Sally, 2002). This theory further argues that the role of government is to enact policies and protect private properties without interfering with market dynamics (Sally, 2002). As a result, this theory would advocate for minimal government intervention in transportation markets with a strong emphasis on deregulation.

In addition, the public choice theory argues that the policies enacted by the government are usually motivated by the self-interest of bureaucrats and government officials and, in most cases, are not aligned with public interests (Ward, 2014). Therefore, this theory argues that the inefficient allocation of resources and transportation services results from the special interests of bureaucrats and government officials (Shaw,2002). Another key theory is the social contract theory, which argues that governance and protection are, in most cases, offered by individuals relinquishing their freedom (Muldoon, 2016). In a transportation policy context, the theory would fully support government interventions as it ensures market failures such as congestion and pollution are managed.

In that regard, these theories have been used to model Singapore’s governance which strongly emphasizes adopting a market-oriented approach and classical liberal principles to transportation policy. For instance, the classical liberal theory advocates for limited government interventions in markets (Ward, 2014). It has influenced the transportation policy in Singapore by encouraging and promoting the involvement of the private sector and competition. Key examples of the transportation policy adopted in Singapore that aligns with this theory are certificate of entitlement and Electronic Road Pricing pricing (ERP). Singapore adopted these policies to regulate vehicle ownership and manage congestion through limited government interventions and increased reliance on market mechanisms (Wang, 2021). Electronic Road Pricing (ERP) was adopted by Singapore in 1998 to manage traffic congestion, whereby motorists were charged a certain amount for using certain roads during peak hours (Toh, 2023). The charging of certain payments in the ERP system policy in Singapore is seen as a form of market-based pricing that makes road users bear the cost of the negative externality of congestion (Tan and Taeihagh, 2021).

In addition, the Certificate of Entitlement (COE) is a transportation policy adopted in Singapore to control vehicle population growth and promote public transportation (Jin, 2014). This policy entails auctioning minimal vehicle ownership permits, with demand and supply determining prices. In other words, market forces influence the allocation of scarce vehicle ownership permits to control the vehicle population (Wang et al., 2020). However, adopting market-oriented policies in addressing the transportation market failure has received criticism in Singapore. Critics argue that despite adopting these policies, the country still faces persistent traffic congestion. Others argue that the COE policy has failed to curb the demand for private cars, as most people in Singapore consider cars a symbol of success (Jin, 2014). According to these critics, the COE system has failed because it lacks fundamental good governance criteria, mainly transparency and accountability in their auction and pricing processes.

Furthermore, critics posit that transportation policy is founded on the efficiency and effectiveness of governance. The COE system in Singapore has traded car affordability and equity for sustainability, whereby low-income households cannot access cars (Theseira, 2020). Also, other critics argue that good governance in the transportation sector is achieved through democratic decision-making in which various stakeholders participate (Zahraei et al., 2020). As a result, critics posit that the ERP system implementation did not go through democratic decision-making as there were no significant participation and consultation of the public as the prices affect sections of the public disproportionately (Tan and Taeihagh, 2021).

Furthermore, Singapore has adopted the social contract theory in their transportation policy development. According to the social contract theory, government interventions should take place as it protects the well-being and welfare of citizens. Singapore has hugely invested in transportation infrastructure to curb market failures such as traffic congestion. One of its key investments is Mass Rapid Transit (MRT), which provides the general public with reliable, affordable, and efficient transpiration (Wang, 2020). In addition, Singapore has expanded its MRT system over the years, with light rail transit being the MRT feeder from residential areas and areas that do not have railways (Zahraei et al., 2020). The huge investment by the Singapore government in the MRT system and light rail transit is to promote public transportation and reduce over-dependence on private cars (Zahraei et al., 2020).

Also, to reduce congestion and ensure efficient mobility in the city, Singapore has invested in pedestrian-friendly streets and cycling path networks. Therefore, it’s clear that these policies implemented are aligned with social contract theory as they ensure the people of Singapore have equitable and sustainable transportation options, regardless of their social and economic status. However, these policies have received intense criticism on whether they have addressed the transportation market failure. According to critics, the overcrowding and unreliability of the MRT system during peak hours in Singapore have intensified the use of private cars (Zahraei et al., 2020). Therefore, there is a need for the government in Singapore to evaluate these issues and improve their interventions to efficiently address market failure.

Furthermore, the governance approach to transportation policy in Singapore has been influenced by public choice theory, which focuses on individuals’ rational behaviour and self-interests in decision-making (Shaw, 2002). In the transportation context in Singapore, the government operates the majority of public transportation services through the Public Transport Council and Land Transport Authority. These transportation services include Electronic Road Pricing, revenue generated from MRT and Certificate of Entitlement (Jin, 2014). As a result, this has raised concerns about whether the Singapore government has squeezed competition and prioritized its interest over those of the public and industry stakeholders. In addition, as we know, an essential criterion in evaluating good governance is responsiveness which involves the decision-makers being responsive to public needs and concerns. In Singapore, the transportation market failure is addressed by Land Transport Authority (LTA) implementing various policies such as public transportation, and it needs to be in alignment with the public feedback (Zahraei et al., 2020). For example, the LTA responded quickly to public feedback on their concern about expanding MRT connectivity. However, the LTA response to public concerns has been criticized for being limited to the self-interests of bureaucrats, which hinders the adverse stakeholders’ ability to effectively influence transportation policies (Wang, 2020).

4.0 Conclusion

In conclusion, Singapore is a country island situated in South East Asia and acquired its independence from Malaysia in 1965. Since then, the country has gone on to become one of the wealthiest in the world, with a GDP per capita of $72,000. However, there are key market failures that the company has faced recent past, such as transportation market failure due to factors such as increased demand for cars, a large population density, and a small land area. The inability of the country to enhance its transportation system has led to it facing negative externalities such as air pollution, traffic congestion, and pollution. In order for these negative consequences to be addressed, Singapore formulated and implemented policies such as Electronic Road Pricing, a Bus Service Enhancement Program, an Integrated Public Transportation Network, and the Promotion of electric vehicles. For instance, electric vehicles were promoted by the country to reduce air pollution, the ERP was introduced to reduce traffic congestion, and the aim of developing a bus enhancement program was to reduce overcrowding in buses and boost passenger safety.

Despite these measures being effective in addressing issues related to transportation market failures, there is a need for the Singapore government to subsidize electric vehicle production to reduce high upfront costs. Additionally, Singapore should promote active transportation where it encourages commuters to use methods of transport such as cycling and walking, which reduce reliance on public transport. This can be achieved by the government developing cycling paths and parking areas.


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