Many urban policy makers want more-robust public transit systems because they help reduce road congestion and traffic-related pollution. Many commuters, on the other hand, prefer to drive. What policy can improve the average person’s well-being?
Looking at data from Chicago, Chicago Booth’s Milena Almagro and a team of colleagues find that it's not a single policy, but a combination of policies that could generate substantial improvements for the average traveler. By implementing road taxes and reinvesting the revenue in cheaper fares and more optimal frequencies for trains and buses, the city could generate up to $52 million per year in benefits for commuters, they find.
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Narrator: City policymakers are always seeking ways to promote public transit and reduce traffic and air pollution. However, usage rates across the US are generally very low. Only 3.4 percent of daily trips are on public transit. According to the Department of Transportation, the average bus uses only 30 percent of its capacity. In Chicago, the average bus fare covers just a quarter of the total cost of a ride, leaving taxpayers to eat 75 percent. Clearly, public transit is expensive and inefficient. Is there a way to get more people to use public transit but also make it more financially efficient in American cities?
Milena Almagro: The whole point of this paper is to try to understand that question and think about the tools that you have to try to make public transit more efficient.
Narrator: That’s Chicago Booth’s Milena Almagro. She and her coauthors compiled location data from mobile phones, data on ridesharing, and data on Ventra card swipes used to pay for rides on trains and buses operated by the Chicago Transit Authority, the CTA. The data allowed them to track how people travel in the city.
Milena Almagro: The first thing that we wanted to answer is: Is this the right level of subsidies? Should the governments invest more money and make public transit less expensive, or should we reduce subsidies? If the CTA had more money, the CTA would like to reduce the price of fares and also reduce some frequency of buses and increase the frequency of trains. Now, of course, the CTA doesn’t have infinite resources to solve for this problem. So what happens when you impose the fact that the CTA has this budget to run the transportation system? What you find is that the CTA cannot lower public-transit prices as much as they wanted to.
Narrator: Which means the city needs to find other ways to reduce road congestion and pollution. One option that has been explored by other cities is to levy road fees on drivers.
Milena Almagro: The idea is that maybe you want to increase the cost of traveling by car because this is going to incentivize people to start traveling in public transit. And maybe there is another byproduct of this that you’re going to reduce congestion and probably you’re going to reduce environmental externalities. But it’s hurting a lot the average traveler because the average traveler in Chicago uses cars as their most preferred mode of transportation. What can we do? What can we do to make this policy be a good thing for the average person in the city of Chicago?
Narrator: The researchers find that taken one at a time, policies such as road fees, adjusted fare prices, or public-transit frequency changes don’t have enough positive upside. But a combination of these policies can lead to better outcomes for everyone involved. Implementing a road fee of 37 cents per kilometer, or $14 a day for the average car commuter, could raise enough revenue to essentially make public transit free.
Milena Almagro: So when you put all of these together, what we find is that the average traveler is going to gain 50 cents per week. This doesn’t sound like a lot, but you should take into account that the city of Chicago has 2.7 million people. So if you add up everything together, this is going to lead to welfare gains of $1 million per week times 52 weeks in a year. This is $52 million per year, which is a very large number if you think about it.
Narrator: A combination of transit policies seems like the best solution. It would make public transit free and reduce traffic and pollution, but is a policy like this even possible?
Milena Almagro: We know for sure that congestion pricing and road pricing is the most efficient thing for society. However, very few cities in the world are adopting that type of policy. Throughout the process of writing this paper, we’ve been talking to the CTA on a frequent basis, and something that we found out is that they’re running on a weekly loss of $11 million. Those $11 million is coming from taxpayer money. So there is a question of how are we going to be able to keep funding public transit? And I think our research sheds some light about how we can do that, and one of the reasons, or one of the ways to keep funding public transit is through road pricing.
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