Thursday, August 27, 2009

Tripping over the Simpson Curtain

This blog was recently featured as "Blog of the Week" on the Free Public Transit Blog. I do believe in access for all, meaning that we cannot have equal opportunity until we all have equal access to housing, jobs and shopping, regardless of whether we can afford the favored transportation mode of the moment. However, I don't think we have any collective obligation to make it comfortable. And while I'm very honored to be featured, I'm not by any means convinced that all public transit should be free.

In addition to the fairness and equal opportunity arguments, free public transit advocates argue that there is a cost to fare collection itself, some of which is paid by the transit operator in the form of security, and some by the rider in the form of delays. I feel that most of this cost can be eliminated with a well-run proof-of-payment system, but that's not the main point of this post.

The main argument is that making transit free will entice drivers to shift to transit, which is good for our goals, including combating pollution, resource depletion, carnage and sprawl. One proponent, Vancouver resident Dave Olsen, points to something called "the Simpson-Curtain rule", which specifies that "Revenue for any system drops when ridership dips or when fares are increased." So if revenue goes down when fares are increased, then if fares are zero, revenue must be infinite!

Well, not really, but Olsen claims that free transit will get more and more people to stop driving, until we've all turned our cars into planters and hopped on the bus. To support this, he took a visit to Whidbey Island, Washington and then wrote a summary of the fare-free buses in Hasselt, Belgium (it's not clear whether he actually went there - after all, US Airways is not fare-free). In both places, transit is free, ridership is booming, and everyone is happy. The rest of his series involves mostly local Vancouver politics and arguments for eliminating fares there, and can be found here.

I was intrigued by this story, and as I suspected, things are actually quite different, and a bit more complicated, than Olsen portrays them. Stay tuned for more on that.


Alon Levy said...

Revenue drops when fares are increased? Since when?

Christopher Parker said...

Amtrak's fares are priced to get the maximum revenue for the capacity they have. In other words, if the theory is right, increasing fares further will make revenue drop.

So that confirms the idea that total revenue can drop when fares increase.

Southwest airlines works on the same model.

However, there is a sweet spot in these calculations, and that is influenced by capacity. Amtrak has pretty fixed capacity, and Southwest is pretty constant too (recognizing these are much more complicated subjects).

Below the sweet spot, lowering fares lowers revenue.

Cap'n Transit said...

Yes, it's fairly uncontroversial microeconomics that if you sell something at a price that's too high, less people will buy it.

But it's not linear, and it's highly context-dependent. See this PDF from the Victoria Transportation Policy Institute for more information.

George K said...

The reason why I would support free public transit is because it does provide a redistribution of wealth in the city. Taxes would have to be raised to accomodate the fare-free transit, and the wealthier people would be more affected. In the meantime, the poorer people would no longer have to bear the cost of using mass transit.

If fare-free transit were implemented, I'm sure you would see an increase in cost-efficiency (though obviously not farebox recovery ratio) on all of the lines in the system.

By the way, when I say fare-free transit, this should only apply to local travelers. For example, in NYC, the express buses should still charge a premium fare, since they are more costly to operate than local buses.

Cap'n Transit said...

I'm not convinced that transit should shoulder the burden of creating a classless society all by itself, George. It'd probably be easier if we separated transit from charity.