MANAGEMENT OBJECTIVES AND THE CAUSES OF MASS TRANSIT DEFICITS
policy - fares, economics - profitability, economics - profitability, organisation - management, mode - mass transit
Welfare economics, Transit operating agencies, Transit lines, Time series analysis, Subsidies, Public transit lines, Profitability, Output, Mass transit lines, Management, Level of service, Fares, Deficits, Decision making, Chicago Transit Authority, Chicago (Illinois), Case studies
Previous studies have argued that the rapid increase in subsidies to urban transit systems during the 1970s was partially the result of endogenous decisions by managers who did not control costs, made unwise service expansions and were reluctant to increase fares in an inflationary era. This paper explicitly considers decisions by managers on the price and quantity of output in order to determine if the decisions made by managers were a use of the subsidies or the source of increasing deficits. Data from the Chicago Transit Authority (CTA) over a 50-year time period is used. Exogenous decreases in demand and increases in costs are estimated to have reduced the annual profitability of the CTA by $1 billion from the period 1948 to 1997. Half of this decline was recouped by reductions in service, increased fares and increased productivity. Even more would have been recouped had the CTA not given away earlier productivity gains during the 1970s when subsidies were increasing rapidly and seemingly without constraint. When faced with financial challenges, management has preferred to increase fares rather than reduce service levels. However, this phenomenon actually makes riders worse off as the price/output combination moves further away from that which would maximize social welfare given the budget constraint.
Savage, I, (2004). MANAGEMENT OBJECTIVES AND THE CAUSES OF MASS TRANSIT DEFICITS. Transportation Research Part A: Policy and Practice, Volume 38, Issue 3, p. 181-199.