Information and Strategy in Lemon Markets: Improving Safety in Informal Transit

Working Paper
Published on 1 September 2022


Road traffic accidents in poorly regulated public transit is a leading cause of death in low- and middle-income countries. We study how providing information about bus safety to passengers affects the demand and supply of safer public transit. We collect high-frequency measures of safe driving for five firms operating on one of the busiest long-range routes in Kenya, using a newly developed tracking device. We randomize private information to passengers about which firm is the safest choice. We then provide a public signal to both passengers and firms that buses are now being tracked. Treated passengers do not respond to private information at first, but after the introduction of the public signal they substitute strongly towards the safe firm, and some firms provide safer services. We rationalize these effects in a model of heterogeneous firms responding strategically to higher demand for safety due to the public signal. We derive welfare estimates of alternative equilibria, which imply that the welfare effects of information interventions crucially depend on the nature of the market equilibrium.


Gregory Lane

University of California, Berkeley

David Schönholzer

Stockholm University

Erin Kelley

World Bank