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Public transit: the price to ride is never too high

The economics of public transportation suggest that transit authorities can raise prices without reducing profitability. But there's a key reason they don't do it.

"Four dollars a ride? That's heinous!"

The truth is that you're probably going to pay it anyway. So whether you're a New Yorker or Washingtonian or Angeleno or Atlantan, if your local public transportation authority hikes the fares, you're going to complain loudly -- and then pay up.

A new article in Capital New York spells it out, explaining how there's precious little market pressure preventing the city's Metropolitan Transit Authority from raising prices to ride. According to data from the report "Transit Cooperative Research Program 95," rider response to fare changes is generally inelastic. (If you're unfamiliar with that economic term, it means that straphangers don't put their money where their mouth is when complaining about price hikes.)

Dana Rubinstein reports:

By some standards, particularly compared to the customer costs of other major systems around the world, the fares in New York are quite cheap. In January, for example, London's transit authority raised the average Underground fare to £2.70, which converts to $4.33. In the United States, the picture is somewhat more complicated. New York's subway fares are slightly lower than in Washington, D.C., where the cost varies by distance and time. There, the average subway fare for this fiscal year is projected to be $2.87. The D.C. bus fare, however, is substantially lower, projected to an average of $1.07. Taking one ride on the Chicago "El" costs $2.25, a quarter less than our single-ride fare but the same as the base fare used to calculate larger MetroCard purchases. In Los Angeles, straphangers pay $1.50 per ride.

New York City is considering raising prices from $2.25 to $2.50 for a single ride and from $104 to $125 for a 30-day unlimited pass -- a lot of money but quite a deal, considering how much New Yorkers use their public transit system.

So why don't more cities around the world raise prices? Because they'll lose ridership. "If a transit system wants to increase total fare revenues, it should increase fare levels, but expect some ridership loss," according to the authors of the report cited above. "Likewise, reducing fare levels will almost always increase ridership, but at a cost of revenue loss."

Thus the quirk of public transit economics: a system can preserve profitability even while serving a minority of citizens. And what's the point of that?

Photo: Vincent Desjardins/Flickr

This post was originally published on Smartplanet.com