Value Pricing of Transportation Services

The Value Pricing Argument

Professor Joseph Schwieterman is the director of the Chaddick Institute for Metropolitan Development at DePaul Univeristy. His recent commentary in the Chicago Tribune urged the CTA to adopt value pricing, namely, fares that vary by the time of day and the distance traveled. Referring to the latest CTA "doomsday" plan, Schweiterman observed:

If there was any silver lining in the doomsday budget, it was the reluctant acknowledgment that its archaic one-price-fits-all fare structure cannot effectively serve such a massive system. The plan called for higher cash fares ($3) during the rush hour than other parts of the day ($2.50).

According to Schweiterman:

it's a promising sign that the CTA now recognizes that charging all riders the same fare is as obsolete as a steam locomotive. Not only does this practice turn a blind eye toward basic economics and compound the agency's financial woes, it discourages short trips and makes fare increases more politicized than necessary. Yet it has stuck with us like a bad dream.

Schweiterman doesn't stop with the CTA. While strangely he fails to mention Pace, where one can travel for even greater distances for the same fare than on the CTA, he criticizes the failure of Illinois governments to make effective use of variable pricing in both transportation and non-transportation contexts:

Why has it taken so long? Perhaps because other local agencies set a notoriously bad example. Chicago is the only major city in the country that still charges most residents a flat fee for water, regardless of usage. In 2005, the tollway authority adopted a system that apparently makes the average fee paid by rush-hour commuters lower than that for those who travel at off-peak times due to their varying use of I-Pass. And we do virtually nothing on our roads to reward carpoolers. Those who doubt the impact of such incentives need only look at the effects that time-of-day pricing is having on trucks using the tollways.

Analysis

This blog already has featured discussion of the pros and cons of value pricing of transit service. (Here and here.) While Schweiterman's case for value pricing is strong, his commentary has several weaknesses.

First, Schweiterman supports his argument with the assertion that "the CTA remains one of the world's largest rapid-transit systems that doesn't set fares based on distance." This statement may be literally true (I haven't checked), but it lacks nuance. What I have checked is the fare policies of the ten largest U.S. rapid transit system. Only two of those ten systems--WMTA in Washington D.C., and BART in the Bay Area--appear use value pricing. Thus, the flat fares charged by the CTA are not nearly as aberrational as Schweiterman portrays.

Second, Schweiterman states with respect to the higher fares the CTA would charge during peak periods that "these fares would be too high for many who are dependent on mass transit." Yet, Schweiterman fails to address how the CTA or someone else should respond to the needs of the transit dependent who Schweiterman says can't afford a $3 fare during rush hour.

Had he addressed this issue Schweiterman might have argued that there are many government services that not all people can afford. There presumably are plenty of people, for example, who cannot afford U.S. Mail overnight express mail for their primary mail service but can afford a first class stamp. Schweiterman might have argued that the population unable to afford a $3 fare is relatively small compared to the population benefiting from a more economically efficient transit agency and, well, life is tough sometimes.

Alternatively, Schweiterman might have addressed the social justice issue by arguing for some form of social program that would provide financial help to impoverished transit-dependent people. One way would be through reduced fare cards targeted at low-income commuters.

His failure to address the serious social justice issue he raised unfortunately plays into public perceptions that the the advocates of value pricing are callous bean counter types who don't appreciate the challenges facing poor people. That perception makes it difficult to shift from flat fares to value pricing. (It would be an interesting academic study to determine if poor people in Chicago would be better or worse off on average if value pricing were adopted. Perhaps based on their residential locations and travel patterns they would be better off.)

Finally, Schweiterman suggests that value pricing will make the CTA better off financially than a uniform increase in flat fares. This conclusion is not immediately obvious, especially when Schweiterman lauds programs that give away transit rides in central business districts (a practice that has social justice implications of its own). Schweiterman should have explained why. Perhaps it is because value pricing will reduce demand during peak periods, cutting costs. Perhaps it is because value pricing rectifies below market pricing of peak period and long distance transit travel. Whatever Schweiterman's theory for why value pricing will lead to a financially stronger CTA, it would have been nice to have heard it explained.

Despite these shortcomings, Schweiterman's commentary is a welcome addition to what hopefully will be a vigorous debate over the hows and why of pricing both highway and public transit services in Illinois.