Free transit? A thought experiment.

The foremost response to my thought experiment on farebox recovery is that transit should be free. This idea is not new, there is an article on free public transport wikipedia, with some examples.

So why don’t we treat transit like we treat elevators? Functionally they appear very similar, though one operates on the horizontal and the other the vertical.

Several answers:

1. Sometimes we do charge for elevators, and while this is admittedly rare, the cases are informative.
   • We charge for elevators when the users of the elevators are not paying rent in the building the elevator serves and are not doing business with those who are. Whether we are charging for the elevator or the view is not always obvious.
   • There is an unpopular charge for some elevators in China. The custom is of course that elevators (like parking in most places in the US) is bundled into the rent. The custom is not without reason, charging for elevator riders, like charging tolls on drivers, or fares to riders, is an annoyance. The mechanics are perhaps trickier, if you don’t have anyone collecting the fare, do you have to have a turnstile at the elevator, or just the first person who boards has to pay and everyone else free-rides. Staffing the elevator is unnecessary. The honor system would likely break-down, and proof-of-payment requires an annoying enforcement problem. Also the marginal costs of elevators are approximately zero.
2. Sometimes we do give away transit, though is rare as well, and the cases are also informative.
   • For instance, we give away transit when there is a patron who views most of the riders as “us” rather than “them”. That is, for instance, the case at the University of Minnesota, where every student pays (implicitly) a tax to ride on the campus transitway, and the University subsidizes the rest from other fees. The only people using the transitway are students, faculty, staff, and others doing business or research at the University.
   • Sometimes we give away transit in a business park. My favorite example is the Emery-Go-Round in Emeryville, California, functionally a business park with a few residents, which is connected by a circulator bus to the nearest BART station. This is an amenity for tenants, and is paid for by a local Transportation Management Association.
   • Sometimes we give away transit in small cities. Apparently the largest US city with free transit is Vero Beach, Florida, with a metropolitan population of 130,000 (though municipal population of only 15,000) which is largely a tourist town.

     According to Wikipedia, the largest city in the world offering free transit is Tallinn, Estonia, at 420,000 people (the metro area is only slightly larger at 543,000 people), which has only done so this year following a 2012 referendum. Also according to Wikipedia, Tallinn charges for tickets for non-residents. In short, Tallinn residents are part of a largish club. My guess is the community (e.g. Tallinn) identifies the riders as “us” rather than “them”.

We could get into the causality of divisions into “us” and “them”, but I believe this is inherent in human nature. See the example from Muzafer Sherif’s 1954 study of fifth grade boys in Oklahoma:

(1) When individuals having no established relationships are brought together to interact in group activities with common goals, they produce a group structure with hierarchical statuses and roles within it.(2) If two in-groups thus formed are brought into a functional relationship under conditions of competition and group frustration, attitudes and appropriate hostile actions in relation to the out-group and its members will arise and will be standardized and shared in varying degrees by group members.

So maybe buses (or if need be, trains) can be the source of uniting the community rather than a reflection of its divisions. But the evidence of casual empiricism suggests large communities inherently fracture (red states/blue states) unless brought together under crisis (war/tornado, etc.). The problems solved by transit (road congestion, transport for the carless, emissions, the high cost of downtown and University parking) do not seem a strong enough glue to overcome this.

What would be the effect on a transit agency if fares went to zero? Elasticities don’t necessarily hold constant over large ranges, but a 100% reduction in fares at a -0.4 elasticity (which we assumed in the previous post) implies a 40% increase in riders. In most US markets, I think this is too high. (And while the evidence is mixed, Baum estimated -0.1 elasticity). However, with about a 5% work mode share for transit in the Twin Cities now, this would increase transit work mode share to 7%. Assuming these new transit riders were drawn proportionally from the other existing modes (The IIA assumption in modeling jargon.) This would reduce peak commuting auto mode share in the Twin Cities from something like 78.3% to 78.3% – 0.02 * 78.3% = 76.7%. An improvement, but barely noticeable in terms of peak congestion (since some of that gain will be lost to a contraction of peak spreading and induced demand).

The transit agency would need to make up the lost revenue or cut-back service (reducing costs to cover that lost farebox revenue) since its current 31% farebox recovery would go to 0%. Cutting service by 31% while raising ridership by 40% would about double average load factors (if done uniformly). When the bus is half empty, this is not a problem. In peak times this would lead to crushing loads. (Both the service cutbacks and the higher load factor would result in ridership rising by well less than 40% – induced demand works in reverse as well.)

Politically raising taxes for free transit seems difficult, though technically it would be quite simple to raise some tax on something else. For instance, a regressive sales tax on mostly non-transit users has been mooted by the business and transit advocacy community to subsidize transit.

I think farelessness would make transit in the US more vulnerable to cutbacks, as it would not have its own revenue source and unless it were to gain massive ridership (and 7% work mode share does not count in my book as massive) it would still not have the political buy-in for most people to see transit as serving “us” rather than “them”. The reason we have “free” rather than tolled roads is that almost everyone identifies as a road user. To get the American driving public to see mass transit in the same light requires a major perception change.

As we have said before, transit is a private good, it is rivalrous, it is excludable. Further it can in many markets be competitive, at least in terms of competitive tendering for franchises, if not the full chaos of the market without property rights in stops, which even libertarians have identified as problematic. Funding at zero fares like a club good is plausible if you can clearly define an appropriate funding club (a small municipality, a business park, a university). Funding it at zero marginal fares when members pay a fixed seasonal or annual pass is more promising.