How do contract types and incentives influence driver behavior?−An analysis of the Kigali bus network

Abstract

Abstract The rapidly growing city of Kigali has a bus network that is undergoing increased development as underlined in its Transport Master Plan. Two schemes of bus driver remuneration coexist in the city: One constitutes a hybrid salary and commission system, while the other pays a fixed monthly salary. This paper examines the effect of these differing compensation schemes on driver behavior in Kigali using survey data from 2019. The analysis applies linear models incorporating various aspects of driver behavior in a principal-agent framework. The results indicate that the performance-based compensation scheme is associated with higher per-trip passenger fluctuation and faster driving (possibly due to drivers aiming to accrue a higher income) compared to the fixed-wage system. Policy implications comprise the inclusion of further criteria in incentive contracts to internalize potential negative externalities on society, e.g., to hinder the endangerment of passenger safety by appropriately incentivizing drivers. In conclusion, bus drivers who are compensated by performance are more likely to alter their behavior, responding to the incentive scheme through several channels.