Urban Transit Policy
(road-based, not rail)
Daniel Klein
Lecture for Econ 825, 17 Oct 06
Putting rail aside

Rail transit is pertinent, but will be left
aside here. For a comprehensive review
of economists’ judgments on rail transit,
see Balaker and Kim 2006. Generally,
economists frown on rail.
Urban transit defined

Travel modes:
– Driving yourself there (private automobility)
– Biking or walking
– “Transit”: going as a passenger in someone
else’s vehicle (your destination is not the
driver’s)

Tele-commuting is communication, a
substitute for travel
Road-based transit

Conveyance by motor vehicle:
– Buses
– mini-buses
– Vans
– Cars
– motorcycles, mopeds (major in congested
LDC cities)
Cars
Private automobility: the driver transports
her own party to their destination.
 Pure private automobility is not included in
“transit.”
 However, “public” conveyance in private
cars should be included: Taxis, carpools,
etc.
 “transit”: Getting around in some way
other than driving yourself there.

Status Quo Controls






Govt planning of bus systems.
No free entry.
Bans on vans, shuttles, etc. except originating or
terminating at airports.
Heavy control on entry into the taxi market.
Usually heavy regs on taxis: fares, share-ride
bans, etc.
Restrictions on on-the-spot carpools and on
private terminal capacity.
Three elements of a transportation
system
1.
2.
3.
Vehicles
Rights-of-way
Terminal capacity (staging areas)
Apply
Apply
Apply
Apply
to
to
to
to
air travel
ocean shipping
private automobility
urban transit . . .
Government ownership
The government owns the rights-of-way
(the roads) and most of the terminal
capacity (sidewalks, curb areas, bus stops,
bus stations)
 When government owns major
components of the system, it must be an
active player in the system.

Privatize everything?
I’m for that. The “first-best” arrangement, I
think, is to convert all the resources, even city
streets, into private property (Klein 1998).
 Does the liberty maxim then become
unambiguous?
 Well, there would remain the tough issues of
crossing/prescriptive rights or easements.
 Also, hold-out problems and eminent domain
(but see Benson 2005).

Should we discuss the crossing
issue?
Rothbardian libertarians like Walter Block would
probably say that prescriptive crossing rights
violate property, and should not exist.
 I am inclined to agree that they violate property
(Epstein disagrees), but I am not so sure they
should not exist.
 Would spontaneous forces in a Blockian world
would work out OK? Maybe. If so, an essential,
even heroic, role is played by esteem/moral
mechanisms.

Ranking institutional arrangements

My ranking:
1.Govt owns nothing and laissez-faire (perhaps qualified
for crossing prescriptions)
2.Government owns the roads and customary govt
terminal capacity, but otherwise tries to take a neutral
laissez-faire attitude toward vehicles, routes, services,
and private terminal capacity, subject to general rules
for use of the government resources.
3.Status quo: Heavy regulations and govt planning.

This presentation is about 2>3.
The basic proposal
Privatize vehicles and services
 Deregulate private transit services: buses,
shuttles, taxis, carpool systems
 Better manage terminal capacity

– In particular, privatize or semi-privatize terminal
capacity (“curb rights”)

Allow free emergence of private terminal
capacity

Side proposal: Remove subsidies.
Aside about the roads

Improvements to be made there:
– Tolling, particularly of highways. No-brainer
(Lindsey 2006).
– Privatizing existing roads (Roth 2006).
– Building more roads (public or private). A big
issue here is environmental clearance.
– Parking: This to can be “propertized” (here is
my review of Donald Shoup’s great book).
Market imperfections against these
proposals?

Public goods, positive externalities?
– There are arguments about network/density
externalities and consequent need for centralized
coordination
– Then, there is the people’s romance . . .

Negative externalities?
– There are arguments about congestion externalities,
but this is addressed below

Natural monopoly?
– Except in the sense of density externalities above,
economies of scale in services is not borne out, and
even if it was, it wouldn’t form a strong arg against
Market imperfections against these
proposals?

Equity?
– Really no argument for the restrictions on
vehicles and services, or for not privatizing.
Could perhaps address with user-side
subsidies.

Poor information?
– Not really applicable. Could be allayed with
light registration requirements/decals.

Myth of rationality? Not relevant.
Triumph of the Automobile

Flexibility: all points known to man and pavement, when
it suits you, door to door, with or without your pals, no
transfers
Speed
 Comfort
 Reliability
 Security
 Freight, storage
 Privacy
 Shelter

Advantages of transit
Costs of owning a car
 Not having to drive
 Not having to park

Public transit trends
Declining usage
 Rising costs


Source:
Wendell Cox
The Public Purpose
www.publicpurpose.com
Pathologies of public transit
Federal subsidies, with strings that drive
up costs
 Transit-worker interests (unions)
 Bogus cost and ridership projections
 Yet voter support
 Capture theory: Restrictions on
competition, protecting transit worker
jobs, taxi interests, shuttle industry

Making transit work
The taxi is like the best of both
 Transit needs to emulate the taxi


Two types of service:
– Fixed-route
– “Edge” transit: taxis, shuttles, carpools, not
plying a route
A Theory of Fixed-route transit

First, some illuminating experiences:
– US jitney episode of 1914 to 1916
– Jitneys and route associations in LDCs
– Illegal jitney vans in NYC
– Bus deregulation in Britain
 It seems the problems continue

Lessons: Importance of coordination and
curb rights
Advantages of the interloping jitney
Available “now”
 Faster travel
 Safer, more pleasant (typically)
 Courtesy deviations from route


Assume that most riders prefer the
interloping jitney
Thick market
copied from Klein, Moore, Reja 1997
Thin market
Typology: fixed-route urban transit
Curb Rights: A Foundation for Free
Enterprise in Urban Transit
(Klein, Moore, Reja, Brookings Institution 1997)
Four sets of players
Local officials
 Curb-zone leaseholders
 Transit operators (bus companies, jitneys,
and so forth)
 Passengers

Also, private staging areas
McTransit
 “In our scheme, local officials are not
primarily regulators; they are creators and
enforcers of property rights. Provided that
jitney operators and staging entrepreneurs
do not tread on the property rights of
others, they should be allowed to
operated unencumbered” (p. 49)

“Holding companies”?

Preventatitves:
– Commons zones
– Private staging area competition
– Require a degree of openness to jitneys on
the leased zones?
– Requirements against concentration of
holdings?
New typology
“Edge” transit
Taxi markets are typically highly regulated:
entry, fares, restrictions on share-ride.
Economists generally agree that deregulation is
good (Moore and Balaker 2006)
 Shuttles, charter buses, etc: Entry is highly
regulated. PUCs generally outlaw any “stage”
services except originating or terminating at
airports.
 Carpool systems: Not recognized and organized
by government.

Huge taxi market potential

A lot of people with cars who want to get
out of the house. Social contact, activity,
contribution.
Shuttle van potential

Express point-to-point commuter vans
– Sometimes a commuter driver

Kiddie ride vans
Huge carpool potential
Typology of commuter services
Commuter driver
Passenger participates by
the trip
On-the-spot carpools
Passenger participates by
the month (subscription or
weekly or monthly pass
Carpool
Vanpool
Buspool
Commercial driver
Taxis
Commuter van
Commuter bus
Subscription van
Role of economics





From: Nick Dranias
Sent: Oct 6, 2006 2:34 PM
To: Adriantm@aol.com, tedbalaker@earthlink.net
Subject: MN Taxi Victory Release
Gentlemen:
Taxi reform won the council vote! Barring a mayoral veto, the PCN
standard will be gone by next Saturday and the cap will be gone by
2010. Thank you for your valuable assistance during the PCN
hearing! It was a crucial contribution to the cause.
Your prior research was the seed that finally grew. You both
deserve to share in the credit for the ultimate success of the taxi
reform effort.
Very truly yours,
Nick Dranias
Staff Attorney
Institute for Justice MN Chapter