US cities pay too much for buses

"Federal funding typically covers 80% of bus purchases, with agencies responsible for the remainder."

Well, there is your answer. The one making the purchase isn't the one primarily paying for the purchase. This makes them less sensitive to pricing.

Kinda like how expensive healthcare is since it is paid for by insurance.

Or how you don't care how much you put on your plate or what you choose to eat at an all you can eat buffet.

The second you detach the consumer from the price of something, even through an intermediary such as health insurance, that is when they stop caring about how much something costs, and so the price jumps.

And congratulations to any of today's lucky ten thousand who are just learning of the Principal-Agent Problem.

https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...

I'm convinced that a great majority of problems in the US these days fundamentally boils down to principal agent problems. The 2008 financial crisis is a great example. Once banks no longer kept mortgages on their own books, it just became a matter of time until that was going to blow up. The incentives change.

It takes more than just misaligned incentives to get a banking crisis -- you have to have structural corruption preventing the transfer of the loss gradient back to the "misaligned" decision makers. It's somewhat disingenuous (or overly innocent) to reimagine the pathways which power structural corruption as "innocent ignorance in the face of bad incentives".

The real world has "actually bad" actors -- not just misaligned incentives.

> It takes more than just misaligned incentives to get a banking crisis -- you have to have structural corruption preventing the transfer of the loss gradient back to the "misaligned" decision makers.

Nah, you can do it just on the basis of information asymmetries.

Banks can sell mortgages. People think buying mortgages is safe, because banks don't loan money to people they don't think can pay it back, and even if they did, the mortgage is backed by the house so in the worst case you can foreclose and get back your principal. So lots of people buy mortgages.

Then banks figure out that it's easy to sell mortgages, and that if they sell them it doesn't matter that much if the people they loan the money to can pay it back. Plus, the less creditworthy people pay higher interest rates, and you can still foreclose if they default. So banks make a lot of loans to people who can't afford them, and then sell the mortgages, and people still buy them.

Except that if this happens at scale, the people taking out mortgages they can't afford bid up the price of houses. And then when they start to default and you want to foreclose, you'd have to sell the house to get back the money, which at scale means that the prices would go back down to where they were before they got bid up, which means you wouldn't even recover your principal.

If everybody realizes that this is what's going to happen then people wouldn't buy bad mortgages from banks and then banks wouldn't issue them. But if enough people don't notice until after the bubble is inflated...