The theory of second best in urban mass transit: Management in the public sector as a proforma exercise

This paper focuses on four issues. The first is the case of one-sided investments in mass transit in metropolitan areas of developing countries. It is pointed out that in many cases in which the conditions for optimum investment policies (Pareto's Optimum) are not maintained, excessive investments on mass transit, including large annual operating subsidies, usually lead to substantial sub-optimizations and waste of scarce financial resources. This problem is then reviewed under the light of the “Theory of Second Best” as articulated for all investment options within Welfare Economic Theory. The second issue examined is the matter of recently discovered important diseconomies of scale of large metro transit systems in developing and developed countries, and the need to retain production of transport services within small-scale production units that are well coordinated and controlled. The third issue discussed is the problem of mismanagement of most public sector transit companies and agencies. The notion that most such systems are simply administered, not managed, is being brought up and the requirements for proper management are amplified. Finally, the case of public vs. private ownership of mass transit is being discussed with a distinction between public policies of providing mass transit services and the actual production process of these services. Provision of services represents a public responsibility that belongs to the public sector. However, production of service is a techno-economic process that requires different talents and circumstances. The paper concludes with a strong suggestion for major reorientation of urban mass transit in the metro areas of developing countries towards more efficiency and higher productivity.     

Organizational form and performance in urban mass transit

Ownership and management for urban mass transit organizations have taken many forms over the years, with publicly‐owned and managed systems now dominant. In recent years, however, strong economic and political forces have increased pressures for privatizing urban mass transit services. This review analyses 20 studies from three countries (predominantly the U.S.A.) on the relationship between organizational form and fixed‐route bus transit performance. It concludes that previous research has not made a persuasive case for the whole‐scale privatization of either ownership or management of urban mass transit organization. Conclusions here are intended to apply to the U.S.A. as well as other countries with mixed enterprise systems in which choices about organizational form may have some consequence for performance.     

Sharing costs in Swedish road ownership associations

Usually transport systems, and roads in particular, are viewed as public goods. However, this is not always the case. In Sweden a large part of the road system is privately owned. Most of these privately owned roads are rural roads used by farmers and summer cottage owners, or used for forest transport. These roads are mainly provided by ownership associations.An important difference between public roads and these privately owned roads is that all investments- and maintenance decisions are made by the users themselves, who also have to pay the costs, whereas the usual case is that the owners/providers of a road-system are different agents than the users. Here the question is not how to charge the roads but how to split the costs of the roads among the users in an efficient and “fair” way.The motivation of this paper is the practical problem of how such an ownership association can divide the costs for the road network among the members in an efficient and “fair” way. The problem is treated from a game theoretical point of view, making use of the Shapley value. This means that the problem is associated with a game - a mathematical representation of the conflict situation. The Shapley value is a very important solution concept for cooperative games, like the game in this case. For games corresponding to this specific type of problems, it is shown that the Shapley value has excellent properties, such as beeing an element of the core, and beeing very easy to compute.     

The economic use of subsidies for urban mass transportation

The energy crisis and various urban problems stemming from auto congestion, pollution, and the cost of providing public highways have created enormous interest in revitalizing our urban mass transit systems. Currently much is being said and written regarding the efficacy of granting federal, state and/or local operating subsidies. In this article, the author reviews the transit industry's peak capacity problem, and questions the economic wisdom of providing operating subsidies, as some are now being provided, and how most will probably be administered in the near future. An alternative plan suggests the manner in which subsidies can eventually help the transit industry. The article concludes with an analysis of what research efforts are needed in many urban transit systems and how subsidies can be used to support such research.     

Indirect production function and the output effect of public transit subsidies

This paper uses an indirect production function to decompose the effects of subsidies on output into the lump-sum, cost and inefficiency effects. Using 2006 data for U.S. transit systems it estimates an indirect production function and uses the results to calculate these effects. It finds that the lump-sum effects exceed the other effects and that the average total effect of the subsidies is a 4.72% increase in output. The range of the output change shows that in many transit systems the output increases from the subsidies are quite large. The paper suggests that reductions in allocative inefficiencies from the subsidies would result in very large increases in output.     

Public transit and alternative fuels – The costs associated with using biodiesel and CNG in comparison to diesel for U.S. public transit systems

This study addresses the dearth of research that examines the impacts of alternative fuel use on operational costs of public transit in the U.S. Specifically, the study examines the impact on operational costs of shifting diesel gallons to biodiesel or to compressed natural gas (CNG) for an unbalanced panel of 269 public transit systems in the U.S. from 2008 through 2012, using an econometric cost function approach. We find that shifting all diesel gallons to biodiesel results in operational cost increases ranging from 1 to 12 percent, with smaller cost increases being realized with increases in system size. Shifting all diesel gallons to CNG results in operational cost increases between 5 and 10 percent – again with smaller impacts for larger systems. These findings suggest that there are some economies of using biodiesel and CNG with large scale production. That is, the cost increases associated with increased fuel prices, decreased fuel economy, increased maintenance costs, and increased fueling costs associated with biodiesel and CNG are mitigated somewhat by large scale production. The findings of this study suggest that increased operational costs are an important consideration in policies aimed at encouraging the use of alternative fuels by U.S. public transit systems.     

A causal analysis of car ownership and transit use

The causal structure underlying household mobility is examined in this study using a sample obtained from the Dutch National Mobility Panel survey. The results indicate that car ownership is strongly associated with mode use, but that it has no influence on weekly person trip generation by household members. Characteristics of mode use are examined through a causal analysis of changes in car ownership, number of drivers, number of car trips, and number of transit trips. It is shown that observed changes in mode use cannot be adequately explained by assuming that a change in transit use influences car use. The finding suggests that the increase in car use, which is a consequence of increasing car ownership, may not be suppressed by improving public transit.     

Cooperation in transit delivery in West German metropolitan areas

West Germany is densely populated, averaging 245 inhabitants/km², but varying widely between urban agglomerations and rural areas. Transport volume has increased by 40% since 1970, with virtually all growth due to private automobiles. Since 1981 public transit has been suffering from decreasing demand.A 1964 Expert's Report to the German federal government was the stimulus for initiating an effective funding mechanism for new public transit construction. In 1965 Germany's first federated transit authority was founded for the region of Hamburg.Principal among the goals of any cooperative agreement among transit companies are improvements for the passengers and improvement of revenues for the companies. To attain these ends, two distinct forms of transit aggrements have been developed in Germany: transit cooperative (Verkehrsgemeinschaft) and transit federation (Verkehrsverbund). The former is more suitable for smaller to medium-sized towns, while the latter is more suitable for larger cities. The two types are described in this article.German transit federations during the 1970s succeeded in significantly increasing ridership, while during the 1980s patronage has either remained steady or has declined. Yet transit federations showed much better perfomance than did public transit in general. In terms of costs and revenues, no public transit organization in Germany is able to break even; deficits vary between 42% and 55%. The author concludes, however, that hidden subsidies for automobile traffic are far higher, because of environmental damage and the high social cost of traffic accidents.     

Subsidy and public transit performance: A factor analytic approach

The need to measure and evaluate transit system performance has led to the development of numerous performance indicators. However, depending upon the indicator, we oftentimes reach different conclusions regarding transit system performance. The research reported in this paper uses factor analytic methods to generate a set of underlying attributes (factors) that capture the performance of public transit systems in Indiana. Similar to what is reported in the literature, this study finds three attributes that best describe transit system performance: efficiency, effectiveness, and overall performance. Based upon systemsÕ factor scores, the study finds that systems scoring highly on one attribute generally perform well on the remaining attributes. Further, there is an inverse relationship between system performance and subsidies, a finding that supports performance based subsidy allocations.     

An actuary method for the estimation and comparison of urban bus transit cost of services

This paper presents a new cost allocation method developed for estimating the fully-allocated costs of the excess peak hour bus transit service provided by two public transit systems. The estimates were produced for the explicit purpose of carrying out a realistic comparison of these costs and the costs of the potential provision of the same service by private operators. The method utilizes the same service data for the analysis. The pragmatic estimation of the fully allocated costs of service by the public and private sectors enables a more accurate estimation of potential cost savings. Sensitivity analysis was also performed using the same costing procedure to determine the range of cost savings that are feasible in a competitive contract arrangement of private sector providers. The new method separates costs of the direct provision of service from other indirect costs and thus facilitates the identification of each cost item and its significance in comparative cost estimates.     

Integrating congestion pricing,transit subsidies and mode choice

We model and analyze optimal (welfare maximizing) prices and design of transport services in a bimodal context. Car congestion and transit design are simultaneously introduced and consumers choose based on the full price they perceive. The optimization variables are the congestion toll, the transit fare (and hence the level of subsidies) and transit frequency. We obtain six main results: (i) the optimal car-transit split is generally different from the total cost minimizing one; (ii) optimal congestion and transit price are interdependent and have an optimal frequency attached; (iii) the optimal money price difference together with the optimal frequency yield the optimal modal split; (iv) if this modal split is used in traditional stand-alone formulations – where each mode is priced independently–resulting congestion tolls and transit subsidies and fares are consistent with the optimal money price difference; (v) self-financing of the transport sector is feasible; and (vi) investment in car infrastructure induces an increase in generalized cost for all public transport users.     

Life cycle ownership cost and environmental externality of alternative fuel options for transit buses

This paper assesses alternative fuel options for transit buses. We consider the following options for a 40-foot and a 60-foot transit bus: a conventional bus powered by either diesel or a biodiesel blend (B20 or B100), a diesel hybrid-electric bus, a sparking-ignition bus powered by Compressed Natural Gas (CNG) or Liquefied Natural Gas (LNG), and a battery electric bus (BEB) (rapid or slow charging). We estimate life cycle ownership costs (for buses and infrastructure) and environmental externalities caused by greenhouse gases (GHGs) and criteria air pollutants (CAPs) emitted from the life cycle of bus operations. We find that all alternative fuel options lead to higher life cycle ownership and external costs than conventional diesel. When external funding is available to pay for 80% of vehicle purchase expenditures (which is usually the case for U.S. transit agencies), BEBs yield large reductions (17–23%) in terms of ownership and external costs compared to diesel. Furthermore, BEBs’ advantages are robust to changes in operation and economic assumptions when external funding is available. BEBs are able to reduce CAP emissions significantly in Pittsburgh’s hotspot areas, where existing bus fleets contribute to 1% of particulate matter emissions from mobile sources. We recognize that there are still practical barriers for BEBs, e.g. range limits, land to build the charging infrastructure, and coordination with utilities. However, favorable trends such as better battery performance and economics, cleaner electricity grid, improved technology maturity, and accumulated operation experience may favor use of BEBs where feasible.     

The effect of contract renewal and competitive tendering on public transport costs,subsidies and ridership

In this paper, we aim to estimate the effect of contract renewal as well as competitive tendering on public transport costs, subsidies, and ridership. More specifically, we examine to what extent (multiple) contract renewals and introduction of competitive tendering for long-term public transport contracts affect ridership, operational costs and subsidies in concession areas governed by public transportation authorities from 2001 until 2013 in the Netherlands. Our identification strategy improves on the literature as we are able to control for all time-invariant unobserved factors, such as network and area characteristics by using panel data. We show that when renewing long-term contracts, operational costs are reduced by at least 10%, whereas subsidies fall even stronger. For contracts that are renewed at least twice, the reduction in costs is even more substantial and in the order of 16%. We find that the effect of competitive tendering is completely absent, suggesting that the threat of competitive tendering is sufficient in a market where the majority of concessions is competitive tendered. Contract renewal not only reduces costs and subsidies, but simultaneously increases public transport ridership by 7.7%. Furthermore the vehicle-hours elasticity of operational costs is 0.40, pointing to strong economies of density. The geographical scale elasticity of operational costs is around one, which indicates constant returns to scale with respect to the geographical size of the concession area. This suggest that the current size of the Dutch concession area is optimal with respect to costs.     

System optimum and pricing for the day-long commute with distributed demand,autos and transit

The day-long system optimum (SO) commute for an urban area served by auto and transit is modeled as an auto bottleneck with a capacitated transit bypass. A public agency manages the system’s capacities optimally. Commuters are identical except for the times at which they wish to complete their morning trips and start their evening trips, which are given by an arbitrary joint distribution. They value unpunctuality – their lateness or earliness relative to their wish times – with a common penalty function. They must use the same mode for both trips. Commuters are assigned personalized mode and travel start times that collectively minimize society’s generalized cost for the whole day. This includes unpunctuality penalties, queuing delays, travel times and out-of-pocket costs for users, as well as travel supply costs and externalities for society.It is shown that in a SO solution there can be no queuing and that the set of SO solutions forms a convex set. Furthermore, if the schedule penalty that users suffer due to unpunctuality is separable into morning and evening components, then the set of commuters traveling by the same mode arrive at work and depart from work in the order of their wishes. These orders are in general different in the morning and the evening. It is also shown that there always is a SO solution in which users are at all times, and on both modes, either punctual or flowing at capacity. These problem properties are used to identify search methods, both, for SO solutions and for time-dependent tolls and transit fares that preserve the solutions as Nash equilibriums. In every case studied, these prices exist. They must peak concurrently for the two modes in both periods.In special cases involving only one mode, only one period or concentrated demand the solution to the complete problem decomposes by period conditional on the number of transit users, and this facilitates the solution. In these cases the day-long SO cost is the sum of the SO costs for the two peaks considered separately. However, this is not true in general – the solution obtained by combining the two single-period solutions can be infeasible. When this happens, the optimum day-long cost will exceed the sum of the single-period costs. The discrepancy is about 40% of the total schedule penalty for an example representing a large city. Thus, to develop realistic policies the day-long problem must be addressed head on. An approximate method that yields closed form formulas for the case with uniformly distributed wishes is presented.     

Maximizing net benefits for conventional and flexible bus services

Transit ridership is usually sensitive to fares, travel times, waiting times, and access times, among other factors. Therefore, the elasticities of demand with respect to such factors should be considered in modeling bus transit services and must be considered when maximizing net benefits (i.e. “system welfare” = consumer surplus + producer surplus) rather just minimizing costs. In this paper welfare is maximized with elastic demand relations for both conventional (fixed route) and flexible-route services in systems with multiple dissimilar regions and periods. As maximum welfare formulations are usually too complex for exact solutions, they have only been used in a few studies focused on conventional transit services. This limitation is overcome here for both conventional and flexible transit services by using a Real Coded Genetic Algorithm to solve such mixed integer nonlinear welfare maximization problems with constraints on capacities and subsidies. The optimized variables include service type, zone sizes, headways and fares. We also determine the maximum welfare threshold between optimized conventional and flexible services) and explore the effects of subsidies. The proposed planning models should be useful in selecting the service type and optimizing other service characteristics based on local geographic characteristics and financial constraints.     

Secrets of success: assessing the large increases in transit ridership achieved by Houston and San Diego transit providers

This paper summarizes and updates the findings from an earlier study by the same authors of transit systems in Houston (all bus) and San Diego (bus and light rail). Both systems achieved unusually large increases in transit ridership during a period in which most transit systems in other metropolitan areas were experiencing large losses. Based on ridership models estimated using cross section and time series data, the paper quantifies the relative contributions of policy variables and factors beyond the control of transit operators on ridership growth. It is found that large ridership increases in both areas are caused principally by large service increases and fare reductions, as well as metropolitan employment and population growth. In addition, the paper provides careful estimates of total and operating costs per passenger boarding and per passenger mile for Houston's bus operator and San Diego's bus and light rail operators. These estimates suggest that the bus systems are more cost-effective than the light rail system on the basis of total costs. Finally, the paper carries out a series of policy simulations to analyze the effects of transit funding levels and metropolitan development patterns on transit ridership and farebox recovery ratio.     

Distribution of the transit tax burden in five U.S. metropolitan areas

As transit subsidies increased twelve-fold in the United States between 1970 and 1980, metropolitan areas responded in very different ways to the challenge of financing burgeoning transit costs. The variety of approaches to transit finance has led to variation in the income-redistributive impacts of taxation. This paper reports on the results of disaggregate analysis of transit tax incidence in Chicago, Portland, northern New Jersey, San Antonio, and Phoenix. In cases where alternative tax shifting assumptions can be made, a range of tax burden distributions is calculated. Causes of the variation in redistributive impact are discussed. The analysis concludes by comparing the regressivity of financing transit through higher fares with the regressivity of taxes needed to support subsidies.     

Planning hierarchical urban transit systems for reductions in greenhouse gas emissions

Public transit systems with high occupancy can reduce greenhouse gas (GHG) emissions relative to low-occupancy transportation modes, but current transit systems have not been designed to reduce environmental impacts. This motivates the study of the benefits of design and operational approaches for reducing the environmental impacts of transit systems. For example, transit agencies may replace level-of-service (LOS) by vehicle miles traveled (VMT) as a criterion in evaluating design and operational changes. In previous work, we explored the unintended consequences of lowering transit LOS on emissions in a single-technology transit system. Herein, we extend the analysis to account for a more realistic case: a transit system with a hierarchical structure (trunk and feeder lines) providing service to a city where demand is elastic. By considering the interactions between the trunk and the feeder systems, we provide a quantitative basis for designing and operating integrated urban transit systems that can reduce GHG emissions and societal costs. We find that highly elastic transit demand may cancel emission reduction potentials resulting from lowering LOS, due to demand shifts to lower occupancy vehicles. However, for mass transit modes, these potentials are still significant. Transit networks with buses, bus rapid transit or light rail as trunk modes should be designed and operated near the cost-optimal point when the demand is highly elastic, while this is not required for metro. We find that the potential for unintended consequences increases with the size of the city. Our results are robust to uncertainties in the costs and emissions parameters.     

The net incidence of transit subsidies: a case study

The purpose of this paper is to investigate the net incidence of government subsidies to a transit system (i.e., the net impact of who pays and who benefits from transit subsidies). Rather than considering the U.S. transit subsidy program in the aggregate, the net incidence of subsidies to a particular transit system — Tidewater Regional Transit (TRT) — is analyzed. The paper concludes that the net incidence of the TRT subsidy program is progressive. Furthermore, the paper provides a methodology that can be used for investigating the net incidence of government subsidies to other transit systems.     

Modeling isoexposure to transit users for market potential analysis

Transit operators face a difficult fiscal environment and an imperative to contribute to urban sustainability. Under these circumstances, operators must find innovative ways to make public transportation attractive to broader segments of the public, while simultaneously trying to raise revenue to reduce reliance on public subsidies. Development of commercial partnerships is seen as a promising way to achieve these goals. Previous research has examined the potential of using geodemographics to assist transit agencies in the task of identifying potential partners for developing mutually beneficial commercial agreements. In this paper we describe an approach to model isoexposure to transit users as a tool to assess market potential. The approach is based on the analysis of walking behavior of transit users, and specifically distance walked at the end of their transit trip. Spatial modeling is used to geographically project estimates of walking distance for a desired demographic profile at a specific transit facility. After expanding the estimates using sample weights, overlays of these estimates can be used to generate variations in exposure to transit travelers at different locations in space. The approach is demonstrated using the case of Metro users in Montreal, Canada. The case study demonstrates the use of isoexposure profiles as a novel approach to generate marketing intelligence. This should be of interest to transit agencies and businesses interested in developing partnerships.