Tuesday, January 24, 2006

The economic costs of bad public transport

Today’s Sydney Morning Herald has a couple of decent articles on the economic costs of Sydney’s worsening transport system, based on an economic analysis commissioned by the newspaper.

Among the impacts of worsening congestion are lower wages, investment and household consumption and higher inflation. The cause, according to the report, is too many cars and the solution lies in better pricing of public versus private transport:

If these predictions are to be avoided, a big shift in public attitudes on at least two issues is required: public transport and taxation. The city is relying less on public transport and more on cars, and the best way to reverse this trend is with prices.

The report says motorists now get "heavy subsidies" for using the road. They are receiving what economists call an inappropriate price signal - that is, the true cost of the activity is not being felt by the user. The cost of using a car needs to reflect the full social and economic cost of driving. If this is done, public transport should gain a big price advantage over cars and therefore more people will be encouraged to use it. But embedded cultural expectations - especially the growing emphasis on comfort and convenience - count against public transport. The centre's modelling suggests that in the future motorists will have to pay much, much more for the privilege of driving. Attitudes to taxation and government debt will have to shift.

The full report will be available soon from the Centre of International Economics website and should make interesting (if familiar) reading.


Amy Stodghill said...

I'm no economist but the article seems to be suggesting a Pigovian tax? Are there successful models of this application out there? I agree that transportation is a key in sustaining economies - but is fiddling with prices really going to be the answer in reducing traffic congestion? (not that I have an alternative solution at this time...)

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Rob Dawg said...

We already know all about price incentives in transportation. They at best slow the rate of mode change. They cannot reverse modal choice. In the US transit is subsidized some 75% and achieves some 2.5% market share. Roads based private transport is taxed at approximately 100% of enumerable costs. Despite this transit use continues to decline. Europe has something like 50% subsidies for transit and 200% taxes on private transportation and transit use continues to decline. The problem is simple, transit is expensive. No need to look further for hidden issues. It is wholly anti-sustainable to promote transit. Wealth consumes resources and transit subsidies consume wealth. It really is that simple.

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Beth said...

From my experience lobbying in Melbourne, price incentives are important - that is, an exorbitantly expensive ticket will turn users away - but FAR more important is the provision of a service people actually want to use. Contrary to the suggestion quote you excerpted, PT services can provide both comfort and convenience - it's far more convenient to be able to use your laptop in a train than it is to drive to work, for example.

Governments should focus on providing more and better services to attract choice passengers. One bus route in Vancouver run 15 times per hour - that's what I'm talking about.

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David Jeffery said...

Robert, where do those figures come from? I haven't seen figures that contradict what I'd regard as intuitive - that for most urban commuting, public transport is more cost-effective. But it's an empirical question.

Beth, I agree. The convenience factor (ie, time and comfort cost)swamps the price of a journey for most travellers, so using pricing to change behaviour is a blunt instrument if there aren't also convenient alternatives to cars.

Robert Metcalfe said...

I'm not too sure whether it has been mentioned specifically, but it seems that Sydney is crying out for a Congestion Charge (CC).

We have a CC here in London, which encourages the use of other modes of transport and is also intended to ensure that, for those who have to use the roads, journey times are quicker and more reliable.

The London scheme requires drivers to pay £8 per day if they wish to continue driving in central London during the scheme‘s hours of operation.

The beauty of a scheme such as a CC is that it is indeed blunt (which makes its maintenance very cheap) and it provides concessions for those who do not drive petrol cars. This has, I believe, encouraged investment in alternative type of cars and buses – such as fuel cells – and has provided valuable capital for the London government in order to re-invest in public transport.

It has been heralded as a relative success here.


Rob Dawg said...

David Jeffery said...
Robert, where do those figures come from?

The BTS (Bureau of Transportation Statistics), FHWA OHIM and NTD (National Transit Database) in the US include financial data.
The European is quite a bit more difficult to obtain as the funding and reporting are deliberately obfuscated.

With only a very very few exceptions worldwide transit requires some form of public subsidy, the vast majority are so subsidized that passenger fares do not even cover operating costs.

As to declining trends I suggest this; http://www.publicpurpose.com/ut-intlmkt95.htm
Brisbane -7.3% per decade Sydney -7.1% and a rare international exception: Canberra +6.4%

Congestion Charges work exactly as planned. They tax productivity and thus reduce economic activity thereby reducing congestion. The London experiment isn't really congestion charges anyway, it's just another way for the obsolete urban centres to extend their hand into the wallets of outsiders.

Robert Metcalfe said...

Robert Cote said:
“The London experiment isn't really congestion charges anyway, it's just another way for the obsolete urban centres to extend their hand into the wallets of outsiders.”

What a preposterous thing to say for a number of reasons:
1) consumers pay directly for the costs they impose as an incentive to use resources efficiently;
2) the revenue the London government receives goes back into public transport;
3) it has changed people’s behavior, in that they either drive with more than 2 or 3 passengers, use public transport, or cycle;
4) and it is a congestion charge given that it charges a fee for driving during peak (congested) times.

Furthermore, London First (www.london-first.co.uk), a business group whose members account for
22% of the city’s GDP, supports the city’s congestion charge. A survey performed May 2003 found that its members consider the scheme to have overall positive impacts on business activity. The majority (69%) felt charging had no impact on their business, 22% reported positive impacts on their business, and only 9% reported an overall negative impact. Many industries support the charge because its direct costs are offset by savings and benefits, such as faster delivery times.

However, the CC system is not considered totally optimal because (1) the fee is not based on how many miles a vehicle is driven within the charging area. (2) the fee is not time-variable, that is, the fee is not higher during the most congested periods and lower during less congested periods. (3) the fee does not vary by location. (4) it would be more efficient to have higher rates on more congested roads.

Nevertheless, it more efficient at the present time than tolls, and it something worth considering for any congested major city – even Sydney!

Robert Cote please get your facts straight when posting a reply please.

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