Free riding

Today’s Sunday Age has a front page story exploring a ‘radical idea’ for public transport: make it free. They argue that for $340m in lost revenue per year 25 to 30% more people would use public transport saving road congestion and obviating the need for more stronger measures to eliminate traffic from the CBD.

In our book, Finishing the Job (2004), Stephen King and I argued for a similar plan; although we went further. We believed that you could fund all of this by putting ‘Citilink’ style tolls on all roads, using congestion pricing and then taking that revenue to fund free public transport. Actually, we figured that if e-Tags could be used to charge cards why couldn’t they be used to credit public transport users. So get on a tram, swip your card and you get a credit. The result would be a technological means of pricing the externalities, better incentives and an improved environment.

So we don’t think The Age idea is all that radical but blindingly sensible. The real mystery is why so-called environmentally conscious governments do not consider them.

9 thoughts on “Free riding”

  1. I don’t think making it free without comprehensive congestion pricing will work and that was the proposal. Moreover comprehensive electronic pricing seems impractical at present.

    Distributionally unfair too as areas well served (inner city affluent) subsidised at expense of periphery which is poorly served.

    With no pricing on private operators what incentives would there be to improve services? This is the difficult bit – how to get good private sector services in low density areas – minibuses etc motivated by profit with buses rewarded by customers captured not distances travelled.

    I think the plan cited in the Age as stated is a dud. Better to congestion price CBD and major arterials and do as Gans/King suggest in book – price public transport at marginal cost.

    I expressed my alternative view on my blog earlier this morning. Cheers


  2. Harry, have you been on the train recently? Have you realised they are monopolies? They have no incentive to provide better service! On what basis is there a situation now where there is pricing pressure or incentive for private operators?

    Given this simple fact, the PT system may as well be free. At least then we wouldn’t have to pay exhorbitant amounts for crap service.

    Just by the by, did anybody read the article about Connex missing its performance targets this cycle? 8.2% of trains were late. I could understand this if it meant that a train was a minute or two late, but ‘late’ in strict definitional terms is more than 5 minutes late. So, not including trains which are cancelled, Connex cannot get 8.2% of its running trains to stations within 5 minutes of the scheduled time.

    Why on earth should we have to pay for service like that?


  3. Why don’t so-called environmentally conscious governments consider these plans? Because they wish to stay Government rather than become opposition. While the plan is fantastic in aligning the total price of respective methods of transport, it is difficult to see where this fits into the art of the possible.


  4. I am inclined to agree with Harry but would like to build on this (though it is not really my area). To me one important area of public transport which has been neglected is the outer suburbs/cross suburbs – which, practically speaking, means bus networks. I do not know how bus routes are allocated across companies or what restrictions are placed on companies. But for example, it seems odd there is not a direct bus line from Doncaster/Templestowe to La Trobe University – this is probably a result of market divisions from regulation (though would be happy to be told otherwise).

    The free public transport pricing without some modification would seem to provide no incentive for companies to discover and offer new routes in the underserviced (but increasingly dense) middle and outer suburbs. Unless have missed some part of the plan (or your plan with Stephen King)?? Completely free competition without entry restrictions in buses, of course, would do exactly this.


  5. Free public transport for Melbourne is an excellent idea. International experience is that, provided service frequencies increased to meet additional demand and expanded into new areas, the increase in patronage would be much higher than expected. And it can be done without a levy or additional taxes.

    Hasselt in Belgium not only made public transport free, it tripled the size of its public transport fleet, increased service frequencies three to sixfold and had an increase of 800% in 18 months. This was done without a levy or increased taxes. It didn’t cost money either. In fact they city saved so much money it was able to pay off its entire debt and REDUCE taxes.

    There were some unforseen and interesting side effects in European cities which introduced free public or very low cost transport. The amount of commercial activity around transport hubs grew much more than expected, in particular the number of street cafes. In some cases the number of cafes in the city doubled within 3 years. They also saw a significant increase in sales of the major daily newspaper. (What would The Age think of that?)

    Not one single European city has had to increase taxes ot impose a levy to introduce free public transport. Even with the initial capital outlay to increase fleet size and frequency, it saved money overall. Granted that none of them are on the scale of Melbourne, but papers by the Industry Commission (1995) and Prof Peter Newman (1998) have concluded that the economics are scalable.


  6. How did Hasselt ‘save money’ by providing free and better public transport, david b? Was this because of increased commercial activity in the town and hence more tax revenue or lower expenditure on road infrastructure or something else? It sounds exciting but kind of too good to be true. Can you point us to any sources?


  7. Why not just a gas tax (current research suggests ~1USD per gal is economically optimal) or toll roads, then give the money back in forms of (income) tax reductions and let people decide for themselves what would be best for them: either keep driving or take the train or bus.

    In terms of externalities, driving yourself is a ‘bad’. Public transport is not something good.

    What would be the optimal number of buses or trains (or their respective routes or tracks)? I don’t know. I guess most people who’d like a whole bus or train for themselves, stopping in front of their door and in front of their work. Hey, it’s free, isn’t it?


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