Valuing Rail Transit

Abstract

A certain acrimony pervades the long-standing debate over the costs and benefits of public rail transportation in the United States. Some people seem opposed to all rail transit all the time, whereas others support any and every rail project, despite sometimes high costs and low ridership. With much debate focused on pricing automobile externalities, transportation choice, and rail's external benefits, surprisingly few studies assess which rail transit systems create net positive social welfare. If consumer benefits alone do not justify the high cost of a transit investment, what would the external value of a passenger trip have to be to do so? Combining fare, ridership, operating, and capital cost data for 24 transit agencies’ heavy or light rail systems or both, this paper makes back-of-the-envelope estimates of how transit systems’ rider benefits compare with operating deficits. Urban rail systems may not be optimal from a transportation system or economic cost–benefit perspective, but they clearly create value for consumers and society. Given a low, but commonly applied, elasticity of −0.3 and a linear demand curve, two transit systems create net social welfare gains solely on the basis of consumer surplus. At least 10 others likely provide net benefits when economic externalities are accounted for. At an elasticity of −0.6, no system provides net social welfare gains if externalities are not accounted for. At least five systems are unlikely to provide net economic benefits, even given generous assumptions about external and rider benefits.

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