Tag Archives: Massachusetts Bay Transit Authority

Pricing Transit

In Boston, the Massachusetts Bay Transit Authority is considering an increase in fares to raise revenues in order to maintain the profit levels that it saw last summer with steeply increasing gas prices.

In many cities around the world, funding for public transportation is an ongoing issue as different groups of people support varying levels of fare prices and public subsidy for transit systems. However, one mistake often made in this debate is that those supporting changes in fare prices ignore that changing the ticket cost will also change the level of ridership.

This fallacy has been avoided in Boston, where MBTA hired a consulting agency to estimate the effect that an increase in fare prices would have on revenue, acknowledging that more expensive tickets would lower the number of city residents taking buses and riding the T.  The Boston Globe reports:

Just one year after a record number of passengers flocked to the MBTA, the agency has come back to earth, as the price of gas has declined and the economy soured. And it can expect to lose another 5 percent of its riders if a proposed 19.5 percent fare hike is approved, according to a new state analysis.

This analysis acknowledges that as the price of Boston public transportation rises, people at the margin will substitute other means of transportation, reducing the number of riders. This may seem obvious to those commuters who realize that demand slopes downward, but oftentimes those involved in setting prices for public transportation do not acknowledge that changing fares leads to a movement along the demand curve for their service.

In Vancouver, for example, the TransLink system is facing budget shortfalls which it will likely address in part by raising fares.  As explained by the CBC:

The transit authority is looking to generate the additional funding needed through road user fees, a vehicle levy, tolls on bridges, increased fuel and parking taxes, and increased transit fares.

That plan would deliver hundreds of new buses, a third SeaBus, expansion of the existing Millennium and Expo SkyTrain lines, as well as construction of the long-awaited Evergreen rapid transit line to Burnaby and Coquitlam.

It is possible that this combination of price and service changes will increase revenues for TransLink, but this is far from certain without observing how customers respond to higher fares. It seems likely that increasing its services while potentially losing customers who substitute other means of transportation for the newly more expensive TransLink will be a profit losing strategy.

Vancouver policymakers have not considered that by lowering fees, maintaining their existing level of service, and increasing ridership, they could have perhaps balanced their budget without raising prices.