Mitigating supply and price volatilities in Singapore’s vehicle quota system

Traffic congestion in city-state Singapore is managed by vehicle ownership restraint complemented with usage charges in bottleneck zones. A certificate of entitlement (COE) obtained from auctions held twice a month is required to register any new vehicle. As Singapore sticks to a target vehicle population, the quota of COEs availed in the auctions hinges critically on the number of vehicles deregistered before the 10 years expiry of the COE. The paper demonstrates that vehicle deregistrations are negatively influenced by the prevailing COE prices. This engenders boom and bust cycles in the COE quotas and thereby spurs price volatility. It is also shown that below an empirically-derived breakpoint quota, COE prices surge and they may also correlate negatively with bidding competition. To avoid such undesirable situations, a proposal is made to allocate the breakpoint quota as a minimum by borrowing from future quotas. This will help smooth quota and price volatilities while adhering to medium-term vehicle population targets. The practicality of the proposal is discussed against various alternatives.