Column Wed Nov 26 2008

CTA Fare Hike Won't Fight the Status Quo

By Nathaniel Grotte

I went to college in Madison, Wisconsin, where owning a car meant a choice of grocery stores, access to the better thrift stores, and at least a shot at summer jobs that weren't at the library. I expected to be working around Madison after graduation, so I bought a used Volvo during my senior year. That didn't pan out, and I moved to Chicago, where I kept my car — first, because I needed it to move; then, because I didn't know where I'd be working; and then, just because I already had it. Five years later, it's still with me. My girlfriend and I, along with my Volvo and her Ford, live in Logan Square in scenic Residential Parking Zone 274, a pitiful 0.2 miles of street lined exclusively with high-density housing without off-street parking spaces. We both work in Hyde Park and carpool every day, there's an El stop at the end of the block, and we complain to one another about driving and parking on a daily basis, but we've hung on to both of our cars even though I keep finding articles like this one, which estimates that a household like ours would save about $5,000 annually (to say nothing of the stress related to car ownership) by getting rid of one car and making greater use of multi-modal mass transit. But, so far, we just haven't been able to do it.

Our folly, alas, has a name — "status quo bias," as explained by University of Chicago professors Richard Thaler and Cass Sunstein in Nudge: Improving Decisions about Health, Wealth, and Happiness. Consider this familiar-sounding example, which well captures our dilemma:

Consider the example of members of an urban family deciding whether to buy a car. Suppose their choices are to take taxis and public transportation or to spend ten thousand dollars to buy a used car, which they can park on the street in front of their home. The only salient costs of owning this car will be the weekly stops at the gas station, occasional repair bills, and a yearly insurance bill. The opportunity cost of the ten thousand dollars is likely to be neglected .... In contrast, every time the family uses a taxi the cost will be in their face, with the meter clicking every few blocks. So a behavioral analysis of the incentives of car ownership will predict that people will underweight the opportunity costs of car ownership, and possibly other less salient aspects such as depreciation, and may overweight the very salient costs of using a taxi.

A note that follows this example helpfully hints that transit providers could profit from helping adjust people's mental accounting. Hmm.

Now, consider the CTA, which recently approved fare increases (PDF) that affect all full-fare riders. An unpopular decision, to be sure, and some grow weary of doomsday announcements every couple of years. Even so, it's not unreasonable to expect that fares will increase over time, and then there's the imposition of the Seniors Ride Free program and the volatility of gas prices, and one can start to see the necessity of the decision. It's not unreasonable for the CTA to try to recover this difference from fares, which they rely on for 45 percent of their budget. Unfortunately, along with this decision to raise fares came the elimination of the 25-cent Chicago Card discount for rail service and the 10 percent bonus per $20 added.

The CTA obviously expects that eliminating discounts and increasing fares will increase revenue, provided that it doesn't drive down demand and reduce ridership, which it has, at least, the potential to do — this paper observes that "while the immediate effect of a fare rise might be a temporary increase in revenue, the long-term effect is likely to be a decrease." Add to this the CTA's own statistic, as of 2004, that 68 percent of their business comes from "choice riders," who either own or could afford to own a car, but opt instead to take mass transit.* And, I'd guess, it's precisely these passengers who are likely to have a Chicago Card and who are losing their incentives to use mass transit. Chicago Card holders are "more elastic in their ability to absorb fare increases," according to CTA president Ron Huberman — which may be so, but just because they can doesn't mean that they will — especially as gas prices drop and drivers return to their old habits.

At the new $2.25 rate, the $86 monthly pass (up from $75) is paid off after 39 rides, or about a month's worth of to-and-fro commutes. After that, the effective per-ride cost decreases with every additional ride at a rate of around 2.5 percent. Compared to vehicle ownership, $86 for a month's worth of travel is a decent deal, but an $86 upfront cost is a large pill to swallow for someone who has other transportation expenses — not surprisingly, exactly the sort of person likely to be a choice rider.

Inducing someone like me to give up a car might be tough, but motivating someone like me to choose mass transit more often than I do wouldn't be difficult. With the existing base of Chicago Card holders, it wouldn't be difficult or costly for the CTA to institute a program that rewarded this kind of incremental riding. Surely the CTA can afford to pass along a per-ride discount at some point below $86 — they've been doing it for years. And considering that lower fares usually mean more customers, which means fewer drivers (if not fewer car owners), there's a benefit for commuters of all stripes.

Other than reduced fares, the CTA can provide incentives in the form of more comfortable, faster service (which will be explored with the Bus Rapid Transit pilot program, involving dedicated lanes and modern vehicles). The CTA's recent promotional partnership with the iGo car-sharing service is the sort of mental nudge that can help people understand and consider all of the transit options available to them. But by raising prices while ignoring an opportunity to simultaneously incentivize the use of mass transit in other ways, the CTA may ultimately be hurting their bottom line. When customers come to meetings just to express their disgust at the "typical crap," public relations has to be as big of a priority as revenue, which is another reason raising fares while simultaneously eliminating incentives rather than creating them is a mistake.

*The CTA used to conduct biannual ridership surveys until 2004, which is where I found this figure. A representative informed me via e-mail that these surveys haven't been discontinued per se, but there aren't any plans to conduct another one, so there you go. A "mystery shopper" program was initiated this year, but from what I can tell, it's much more online suggestion box than statistically rigid survey.

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Nathaniel Grotte maintains that bicycling is the best way to get around Chicago, with longboarding coming in a whimsical second. He writes about hamburgers at the Chicago Burger Project.