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.

A Toll Road. A Very SHORT Toll Road

There was a rockslide.  Not a very big rockslide.  But the state being the state, it was expected to take 8 months to clear it.

So, the guy who owned the property on one side of the road built a bypass around the rockslide.

And, as Joni Mitchell said, "charged all the people, a dollar and a half just to see it."  Actually, he charged 2 pounds (this being England) just to use it.

Is he exploiting people desperate to avoid the long detour?  Or providing a legitimate service? 

Excerpt:

A British businessman who has grown tired of council works closing off a road near his home has built his own detour, and is now charging motorists £2 each to use it. 

Mike Watts, 62, was forced to drive around a section of the A431 between Bath and Bristol because a landslide had closed the road in February. Council works were due to carry on until the end of the year. 

Not wanting to wait that long, Watts employed his own crew of road workers and built a 365m-long bypass in the field next to the closed-off section. 

An interesting problem.  Because the marginal cost of letting people use the road is close to zero.  No congestion (I assume), and not much wear and tear on the road itself.  Is Mr. Watts exploiting people by charging the monopoly price, much higher than marginal cost? 

Monkey Wash, Donkey Rinse?

There aren't enough parking spaces.

People drive around looking for parking spaces.  They waste lots of time, gas, and atmosphere doing it.

Is there a more efficient way to do it?

Monkey App thinks so.

San Francisco thinks that that is illegal, and since San Francisco has guns (and tanks, actually, a large private army with enough force to take over some countries), San Francisco can prevent Monkey App from operating.

Some questions:

1.  Can I hold a parking space for someone else?  That is, can I park, wait until other person arrives, and then move out of parking space?

2.  Suppose it's an hour before my friend arrives.  Can I pay for three hours, and allow my friend to use the remaining two hours when she arrives and I pull out?

3.   Would it be acceptable for my friend to pay me for the two hours?  At the rate I paid for it, that is, the parking meter rate?

4.  Could my friend pay me for the time I spent waiting? 

5.  Suppose someone pulled up and just wanted to park for 15 minutes, during the hour I was waiting.  Would it be okay for me to let THAT person use the space?  Could the person pay me to pull out so that person could use the space?

If you answer "yes" to number 1, you are saying that deadweight loss is okay in allocation, because I am "wasting" an hour of parking by holding the space, when in fact I don't want to park there.  I just want my friend to be able to park there, when she arrives.  Someone else would have parked there if I had not taken the space.

The counterargument is that people will go into the business of staking out parking spaces.  It's exactly the same problem as ticket scalping.  People who don't want the asset will hire folks with low opp cost of time to wait in line and buy up the asset.  Then it will be resold.  Much of the value of the rent (the scarce resource) will go to the scalper.

The difficulty is that I think the answer to questions 1 and 2 above are "yes."  The only problem is if I get paid.  I can donate the "favor."  But making money on the deal makes it illegal.  Euvoluntary?

Hard to Make Folks Better Off by Denying Them Alternatives

The logic of "price-gouging" opponents is sometimes hard to follow.

People have very few choices, and they are in trouble.

Therefore, we will take away one or more of the choices they do have, because...wait, why?

Dr. Laband has a nice piece in the WSJ today about the AEA meetings, and transport.  Check it out. (Gated)

The highlights:  Airport, snow, big convention.  No airport hotel shuttle, and no taxis.  Really need to get to hotel, because have big presentation at 8 am.  It's nearly midnight now.

Guy comes through baggage claim, offers to take people downtown for $25 per person.  Packs six people into van, drops them all off.  That's probably double what he was allowed to charge, and of course he wasn't really allowed to do it at all.

The state would have prevented this transaction from taking place, if it could have.  Were the six people "exploited"?  If you mean, did they have to pay more because they did not have good alternatives, yes they were.  The exchange was NOT euvoluntary. 

But prohibiting the transaction would have violated the non-worseness principle.  They were all bad off.  They would have been EVEN WORSE off without recourse to the market. 

The driver was not doing this for fun, or out of charity.  He was trying to make money.  He was THERE because the (implied, shadow, black market) price had risen in the face of transport scarcity.  The market told him to help those people who needed help.

Those Uber B**tards!

Uber uses price to ration a scarce resource.  The horror!  Regulation, that's what we need.  Wait, we already have that, in the form of taxi prices that are ALWAYS high.  Look if you don't like the Uber price, wait for a taxi.  And wait.  And wait.

Uber CEO Travis Kalanick explains why it works this way in a tweet:

everyone's treated the same with surge pricing .. Even you.. More cars come out, more rides, Fewer ppl stranded 

Why is that so hard to understand.  "Price gouging" means you should have to give me things.  And the fact that without Uber there would be NO CARS AT ALL... well, it escapes the critics.  It is easier to criticize what you see than to realize what is unseen. 

John Locke on Market Price and "Voluntary" Exchange

For podcast fans.... here is the new one from the Roberts-Munger hit machine.

And, for comparison, the important economic insights of Steve Martin, from Planes, Trains, and Automobiles.