During the pandemic, transit operators suspended fare payment for safety. 

Some have started charging again, while many have decided to stay fare-free. LA Metro is piloting a fare-free system as a long-range goal, while MUNI’s proposed pilot is hotly contested.

Fare-free transit makes sense to me in rural communities and some small cities where the cost of managing cash fare payment and the negative service impacts caused by cash payment outweigh the fare revenue.

But in large urban and many small urban areas fare-free transit has predictable outcomes that concern me.

Chainsaw vs Scalpel

Wholesale fare-free systems are like using a chainsaw when a scalpel is needed. I’ve noticed transit agencies are big fans of “fare-free days” that I think just leave money on the table without achieving any long-term ridership increases.

Transit should be free for certain groups but not for others, and we already have the tools available to do this.

  1. Transit should be free for people who can’t afford it. Agencies can provide free and discounted passes via social services and nonprofit organizations that support those with lower incomes. The discount can be based on household income relative to the regional poverty level. Agencies can “piggyback” on the existing process to determine eligibility for various public benefits, automatically including transportation along with food, healthcare and other basic necessities.
  2. High school and college students should ride free, and in some systems already do (as I was writing this I learned LA Metro is planning to become the largest agency to test this in August). Agencies can build a life-long habit of public transportation use with younger people by getting them familiar when they’re young. This policy has the added benefit of an automatic transition to paid usage after years of habituation. Not all former students will keep riding once they can afford a car, but people automatically prefer things they’re familiar with and humans are habitual.
  3. Off-peak trips should be cheaper than during peak demand. We can use behavioral economics to increase ridership at the times when buses and trains have the most capacity. This requires dynamic pricing, which I’ll write more about soon, and thus electronic payments. The airline industry has used dynamic pricing in a strategy called yield management for years, and transit shares their goal: maximize the value derived from a fixed cost and minimize empty seats.

Price Elasticity of Demand

In most cities fares don’t do that much to cover the cost of service, but that’s not their only purpose. They help “meter” demand to give riders the best experience possible.

What economists call the “price elasticity of demand” tells us that lower fares mean more people ride a lot more. 

So much more that problems arise with on-time performance, crowding, and the inability of agencies to keep up with the demand. 

The best resource I’ve found for transit demand elasticities says that every 10% fare decrease will cause a 3-5% increase in boardings (the elasticity is between -.3 and -.5). Theoretically, a 100% fare decrease could cause a 30-50% increase in boardings, all things being equal.

Some caveats about price sensitivity and elasticity:

  1. Ridership won’t increase immediately. Ridership is more price-elastic in the long-run (5+ years) than in the short-run (less than 2 years). It takes time for people to adjust their lives to be more compatible with transit ridership (where they live and work, car ownership).
  2. Price doesn’t affect everyone’s ridership equally. Counterintuitively, higher income people are more price sensitive. Here’s why: lower income people have fewer travel options now, and therefore there’s only so much more they could ride transit. Higher income people who ride very little could increase their boardings more.
  3. Free fares won’t affect ridership the same at all times of day. People are less price sensitive for work trips, so boardings will increase more dramatically for non-work trips outside of traditional and service-sector commute hours.

What’s Your Experience?

If your agency is fare-free or planning to go fare-free, drop a comment to explain your thinking and observations.

  • What benefits have you observed?
  • What downsides have you experienced?
  • What’s the budget impact – real or estimated?
  • How much of a ridership increase have you estimated or experienced?

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