1. Lecture 7 Tuesday, September 25 Transportation Film about the destruction of the L.A. trolley system: Taken for a Ride http://www.youtube.com/watch?v=ehoVnykvMKY

2. % of Urban Trips by type of transportation (1995)

3. Trends in Annual public transit ridership, 1900-2000

5. 0 200 400 600 800 1000 1200 1400 1600 1800 United States CanadaUnited Kingdom GermanyEuropeFrance Central America Middle East & N. Africa South America Asia Annual liters per person Annual Per Capital Gas Consumption, 2003

6. Annual hours of delay per traveler due to traffic congestion

7. The LA Transportation Story as told in Who Framed Roger Rabbit? http://www.youtube.com/watch?v=8DO5HzEWSkM&feature=related (first 2 minutes) http://www.youtube.com/watch?v=OUnWPcipi1w&feature=relmfu (first 4 minutes)

8. YOUR CHOICE BUSPRIVATE CAR EVERYONE ELSE’S CHOICE BUSA 25 minutes B 10 minutes PRIVATE CAR C 1.5 hours D 45 minutes The Public Transportation Free Riding Problem: Busses vs. Cars Free-riding preferences: B > A > D > C Free riding gain: 15 Minutes (A minus B) “Sucker penalty”: 45 minutes (C minus D)

9. YOUR CHOICE RAILPRIVATE CAR EVERYONE ELSE’S CHOICE RAILA 15 minutes B 10 minutes PRIVATE CAR C 25 minutes D 45 minutes The Public Transportation Free Riding Problem: Light Rail vs. Cars Free riding gain: 5 Minutes (A minus B) “Sucker penalty”: There is no sucker penalty!

10. What are the positive externalities of good public transportation? 1.Quicker commuting times, less congestion 2.Saving on private car infrastructure (parking ramps, street repairs, etc.) 3.Less pollution: less frequent house painting 4.Health benefits (asthma especially) 5.More efficient labor market, especially for poor (easier to get to jobs), therefore less need for welfare 6.Less need for multiple cars in a family 7.Energy savings Key Question: What is the true economic value of the positive externalities of good public transportation?

11. Solutions 1.No free parking 2.Build infrastructure for transportation alternatives: bike paths, rapid transit, etc. 3.Increase residential density within cities 4.The full cost of driving should be reflected in gas taxes 5.Fully recognize the value of positive externalities in the price of public transit tickets. (Implication: perhaps tickets should be free).

13. Solutions 1.No free parking 2.Build infrastructure for transportation alternatives: bike paths, rapid transit, etc. 3.Increase residential density within cities 4.The full cost of driving should be reflected in gas taxes 5.Fully recognize the value of positive externalities in the price of public transit tickets. (Implication: perhaps tickets should be free).

14. Positive externalities & ticket prices 1.Suppose: (a) the direct costs of a ride = $3, and (b) there is some kind of negative externality = $1/ride 2.Then the true cost per ride = $4 3.To cover these costs, the ticket price should be $4, not $3. 4.Now suppose: (a) the direct costs of a ride = $3, and (b) there is some kind of positive externality = $1/ride 5.Then the true cost per ride = $2 6.So, the ticket price should be only $2 7.But the transit company has spent $3 in direct costs to pay for the ride. 8.Therefore the society has to somehow pay for the $1 of value everyone receives to reimburse the transit company for providing the ride.

15. Big Take-Home Message from lecture on Transportation For the free market to enable people to make efficient choices two things must be true : 1.There are no significant externalities – positive or negative – to your individual choice: what you chose does not affect other people. 2.The full range of feasible alternatives from which to make your choices can itself be provided by the market. Transportation violates both of these principles : People will make very different private choices depending upon whether or not there exists a good, efficient, cheap public transportation option, but the market itself can never provide this even if it would be economically efficient to do so.