The anatomy of "Fare or Fine"
Russell Degnan

A few days ago, Fritz challenged me to explain a comment I made over at Spinopsys regarding transport fare collection:

What I don't understand, is why every transit system in the world continues to rely on “fare or fine” systems of payment, when there are dozens of alternative models that could be tried that would be both more efficient and easier for the commuter?'

The characterisation "fare or fine" refers to the relationship of the user to the transport service. In order to ride it, you must either pay a fare, or risk having a fine imposed on you. Both the nature of the fare - from single ride tickets to multi-modal, periodic fares - and the nature of the fine - from the price of the ticket to Melbourne's time 50 impositions - vary from place to place. But by and large all systems involve a user paying a fare to ride, with some onus on the user to purchase their ticket.

When trains were new, and labor costs were low - relative to the cost of running the system - fare-based systems made a lot of sense. However, like every business, the cost of collecting the money is a significant portion of the running costs. Public transport is particularly problematic because each fare is a small amount, rather than a bulk purchase.

There is often a perceived problem here with "free riders". People who burden the system without paying for it. How many free riders there are is determined by how willing the operators are to hunt them out, and coerce payment. Generally - as efficiency and competence matters - an increase in the amount of money spent on ticketing systems will give decreasing returns on the fare. At some level, it is not worth trying to work out who has paid and who hasn't.

Hence the purpose of fines. Although the cost of administering fines hardly pays for itself, it has an importance coercive effect on use behaviour. Fines place the onus of payment on the rider, giving them a choice between getting a fare, or potentially copping a fine. Transport operators have progressively reduced the number of fare-takers (conductors and so forth) and increased the number of fine-takers, as a (supposedly) cheaper way of bringing in the revenue.

To what extent it work is an interesting question. No doubt there is research somewhere, but it is too late for me to be bothered looking for it.

The issue I asked about earlier, relates to the fact that many service industries have substantially different ways of dealing with free riders, and of taking payments. Radio and television for instance, work from advertising and public subscription - the latter being more of a guilt thing. Internet and (increasingly) mobile phone operators give (practically) unlimited use for a monthly cap. Gyms enforce membership by charging exorbitant fees for single uses. Regardless of the system, the standard service provider tries to make things easier for the consumer, by divorcing payment from individual uses - imagine having to buy a daily electricity ticket? - and by reducing the information on where the charge relates to use.

Public transport operators, mostly - I suppose - because they are providing a public service, tend to put ticket prices close to the marginal cost allowing people to clearly see what they are paying for. This information, while helpful in increasing user efficiency, is hurtful for getting funds. The less information the user has, the less rational their decisions.

More importantly, one of the major problems for funding public transport is the long lead time between starting construction and getting fares. Changing the cost structure to emphasise infrastructure costs, not individual trips would make a substantial difference in both the willingness of people to pay, and the amount you could drag out of them.

While I wouldn't wish to imply that any particular service industry is a perfect model for funding public transport, it may be worthwhile considering alternatives that de-emphasise individual fares, put the onus for collection on the operators, and reduce the obviousness of day-to-day use. The relative costs of collection are getting bigger, and new systems don't seem any more likely to solve these problems.

Sterner Matters 13th June, 2007 04:27:47   [#] 


The anatomy of "Fare or Fine"
How about a PT land based (rate-based) levy (based on Frank Fisher's levy idea) that is associated with land use. If you live in an area that has high provision of PT then you pay a levy, dependent upon your land vlaue which in turn is dependent upon the availability of PT. This methods uses Marcus Spiller's concept of 'land value-capture'. The funds raised by the levy are then used to build and improve the PT network for all areas. Also this addresses the complaint that people of outer, poorly service areas have of other standard levies, ie that they don't have a service so why should they pay. It makes PT 'free' at the point of getting on and off, and is very appealling for toursists. Challenges might be: Ensuring that LGA's foward levy component of their rates revenue to DOI and then ensuring that DOI (as has always been the case) invests it wisely. And that it doesn't dissappear into consolidated revenue.
Geoff  14th June, 2007 16:54:17  

The anatomy of "Fare or Fine"
Geoff, that is the logical place I am heading on this. I am not sure the funds need to pay for other areas necessarily. It depends if you left the service privatised, what it encompassed (theoretically you could include road funding in it as well), and what was expected by the operator. It would be a very bad idea to put the levy into consolidated revenue, though an unsuprising one (there are some parallels here with the MMBW and water levies).

It is a complex problem deciding who should be levied for a p/t service. I wouldn't attach it to land value - the land value already encompasses the available transport so it is double dipping - merely on the number of transport services your residence/business has. It does raise the issue though, of whether the local residents should have some say in what type and quality of service they receive. Certainly a direct charge in a local areas for some of the bus routes in outer Melbourne would create some pressure to reform them (in no way a bad thing). There remains an ongoing tension between residents using the road/service to travel through an area, and local needs/wants within an area. The latter would tend towards more traffic calming, bike lanes, and pedestrian zones. The former the opposite - although businesses are still obsessed with local parking.

Some level of local input could help drive the investment process though, perhaps (partially) funding them by skimming the top off levies in existing places. Though you'd still want the DOI and councils to set in place the general nature of future transport investment. Not that there record doing that now is so flash.

Food for thought...
Russ  21st June, 2007 02:23:05