1 Ideal Public Transport Fares Mike Smart 29 April 2014 Sapere Research Group Limited Energy & natural resources Regulated industries Health policy & analysis Public administration & finance Forensic accounting Finance & valuation Urban & regional development Strategy & organisation Antitrust & competition
2 Overall approach 2 Theory is well established, but Measuring externalities is difficult: Congestion dependent on TOD, local geography Modal switching in hypothetical situations Conceptual confusion over accident costs and road pricing Traffic simulation tool was vital: BTS STM used Marginal cost estimates were also challenging
3 Overall approach 3 The optimal fare maximises social welfare. p r * = c r + mec r + i<>r [c i p i + mec i ] ( X i / X r ) p i is the price of mode i; mec is the marginal external cost by mode; c is the marginal cost by mode; X i / X r is the marginal rate of modal substitution; X is output for each mode in passenger-km units. Marginal excess burden of taxation omitted in this version. See Appendix 1, External benefits of Sydney Ferry services FINAL report to IPART, Aug 2012, pp for derivation of formulae.
4 First best second best 4 p r * c r mec r = i<>r [c i p i + mec i ] ( X i / X r ) First best outcome is for p = c + mec for all modes. But if road pricing is too low (i.e., p c c c < mec c ) and reforming it is infeasible (second-best world), then public transport subsidy becomes optimal (i.e., p PT < c PT + mec PT, where mec PT << mec c ). Note that X i / X r < 0 where modes are substitutes.
5 Which externalities are relevant? 5 Relevant externalities are costs not borne by person making the mode choice decision. For decision to travel by car: Costs borne by non-car occupants 1. Air pollution and GHG 2. Pedestrian and cyclist accident victims Costs borne by car occupants (caused by occupants of other cars) 1. Congestion 2. Accident victims occupying cars (to be seen )
6 External costs borne by non-car occupants 6 Area A: litres of fuel consumed Area C Line is fuel consumption rate as function of total p-km travelled litres fuel / km Area B q automobile passenger kilometres travelled
7 External costs to car occupants 7 Area A: external travel time Area C Line is time taken to travel 1 km as a function of total p-km travelled. This function is a characteristic of a particular road network. hours / km Area B q automobile passenger kilometres travelled
8 Accident externality 8 Two questions are relevant: 1. Who makes the modal choice decision? 2. How does this decision impact the accident costs borne by others? We need to know the relationship between: Traffic density and cost of ped./cyclist injury Traffic density and cost of car occupant injury
9 Incidence of crashes doesn t increase 9 with traffic density for Sydney 14/05/2014
10 Severity of crashes doesn t increase with traffic density for Sydney 10 14/05/2014
11 Crash costs borne by car occupants is fully internalised 11 Area A: ext crash cost = 0 Area C =0 crash cost/ VKT Area B Line is accident rate (crash cost/vkt) as function of total VKT q VKT
12 Method 12 Traffic simulations: BTS STM Congestion effect Fuel consumption (emissions) Modal substitution rates Marginal costs: Rail: econometrics on annual report data Bus: econometrics on contract data Ferry: cost model constructed
13 Simulating congestion 13 Task is to estimate the relationship between (1/speed) and traffic density for AM,IP,PM,EV BTS model runs for CityRail study were used: Rail fares reduced by 50% (low car usage) Business as usual, 2011 conditions Rail fares increased by 100% Rail fares increased by 200% No rail service (high car usage)
14 1/speed vs VKT (AM) 14 14/05/2014
15 1/speed vs VKT (IP) 15 14/05/2014
16 1/speed vs VKT (PM) 16 14/05/2014
17 1/speed vs VKT (EV) 17 14/05/2014
18 Modal substitution (i.e., what travellers do when ferry is unavailable) Source: STM 18 No ferry services--all journey purposes Rail Light Rail Don't travel Car Driver Taxi Walk Bike Bus Car Passenger
19 Road pricing 19 Assumption: motoring inputs supplied in a competitive market Price should equal vehicle marginal cost plus Government taxes (petrol excise, road tolls, parking levy) less road infrastructure marginal costs. net road price p c = (fuel excise rate/l) (l/vkt) + (toll/vkt) + (parking levy/vkt) (road damage/vkt)
20 Optimal subsidy 20 p r * c r mec r = [c c p c + mec c ] ( X c / X r ) + [c b p b + mec b ] ( X b / X r ) + [c f p f + mec f ] ( X f / X r ) Focusing on rail vs car: (p r * c r mec r ) X r = (c c p c + mec c ) X c Total rail subsidy ( net road price mec c ) X c Assuming rail mec is negligible.
21 Optimal subsidy results Current rail subsidies are proportionate to benefit Strong effect on peak auto usage 2. Modest bus subsidies are also proportionate Significant effect on peak auto usage 3. Current ferry subsidies are excessive Weak substitute for auto small geographic scope Ferry mainly displaces other public transport Substantial tourist use of subsidies Ferry emission performance is poor Demographic skew not considered here
22 Time of Day-sensitive fares 22 p r * = c r + mec r + i<>r [c i p i + mec i ] ( X i / X r ) Interpret r, i as time of day instead of mode. Marginal costs of PT are higher in peak, but So are marginal external costs of motoring. Also need to consider time-shifting behaviour ( X i / X r ). Until recently time-of-day pricing was infeasible, hence lack of interest.
23 Other applications 1 23 Competing priorities freight vs passenger trains Auction can resolve competing freight claims to a train path, but Passengers don t pay the full cost of a train trip, distorting any freight-pax auction. Suggestion: add marginal external benefit for passenger train to its profit to determine WTP in an auction.
24 Other applications 2 24 External benefit of rail to Port Botany Increased rail transport is desired, but Some subsidy is likely required how much? Methods developed here could help estimate the socially optimal level of assistance for rail transport of shipping containers.