Tuesday, October 6, 2015

The Curious Economics of the WMATA

Griping about the DC Metro is perennial fun for Beltway commuters. If, within living here for more than six months or so you haven't accumulated some urban horror story of broken escalators, surly workers, disgusting riders, or botched service interruptions, you are missing one of the sublime joys of life in and around the Nation's Capital.

The local rag reports on a perplexing annual report posted by the Metro Authority. The nude bones of it: ridership is down thanks to some combination of the following (pp. 72, 73):

  1. Slowdown in area employment.
  2. Reduction in the Federal Transit Subsidy (agencies have stopped footing bureaucrats' transit expenses).
  3. Telework.
  4. People are driving/taking the bus/cycling to work.

    and the buried lede:
  5. There have been a number of, let's call them "safety issues" with Metro rail.
Their solution to a decline in demand is to increase fares.

It's still the first week of October, and at universities across the nation, young men and women are probably around Chapter 3 or 4 of their Principles of Microeconomics textbook. If they're fortunate enough to have a professor (you, perhaps) who uses the excellent Cowen and Tabarrok textbook (now on the third edition), they will have covered supply and demand curves at least two weeks ago. Even mediocre students should be able to tell you that some those five factors listed above will influence the position of the demand curve (others are cross-elasticity responses, but that material will be covered later in the semester). Specifically, they jointly and severally contribute to a decline in demand. These same mediocre students will be able to tell you that raising prices will result in a decline in quantity demanded.

In other words, if your service already sucks, making it more expensive to customers will only alienate them further. Metro is assuming their price elasticity of demand is... hmm, perhaps we haven't covered that yet either. Let's just say that raising prices at a time when reliable alternatives are becoming popular may not result in the hoped increase in revenue.

So should we add "bad at economics" to the list of Metro's many, many, many shortcomings?

I'm tempted to start agreeing with Evan Jenkins: the US approach to city planning and transit is doomed. It seems less and less euvoluntary every year.

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Do you have suggestions on where we could find more examples of this phenomenon?