On the economics of commuting

A little while back, news came out that Metrolinx is considering charging for parking at GO train stations. Expanding transit is going to cost a whole lot of money, and the regional transportation agency is evaluating different options to pay for it. As the news made the rounds on Twitter, an excellent discussion on Twitter about the motivations of transit users ensued:

FInally! @ considering charging for GO parking. Do it. http://t.co/90NRCU8b #TOPoli #onpoli
Nadia S

(for full effect, open the original tweet)

In very basic economics, the demand for a commodity is a function of the supply of that commodity and the price paid to acquire it. The supply-demand model dictates that if the supply is held constant, a drop in price leads to an increase in demand. We could use the supply-demand model to compare commuting choices, given some assumptions:

  1. Commuters must choose either to drive or to take transit. Other choices, such as walking, cycling, telecommuting or relocating, are available to a much smaller population and don’t affect this discussion.
  2. Commuters can choose either to drive or to take transit on any given day. That is, they own cars. Of course not everyone owns a car (yay!) but this is a reasonable assumption for suburban commuters.
  3. Commuters who drive to and park at a GO train station are considered transit users in this analysis. They pay a fare, take up a spot on a train, and don’t bring their cars into downtown Toronto.
  4. People in this analysis commute from the suburbs into work in downtown Toronto. This is of course not realistic – there are many employment centres throughout the GTHA, but the highest density and greatest source of traffic and congestion is downtown Toronto. Also, when congestion is eased in this direction, it improves throughout the area.

We can easily see that increasing the price of transit while keeping the price of driving the same causes some people to drive who chose transit before. Of course, the real world is nowhere near so simple. Let’s discuss some more features of the analysis:

  1. The “price” of commuting is more than just the dollar cost. There is also the time spent commuting, the relative stress of different options, as well as traffic congestion and vehicle crowding, personal safety, stigma, personal preference, etc. The value of each of these components will be different for every individual, but we can look at trends.
  2. The “supply” of driving and transit are fixed in the short term. Supply of driving is available road and parking space, and we’re not building more roads in downtown Toronto (nor should we). Supply of transit is more complex, including vehicle frequency and reliability, and other factors. Metrolinx is expanding transit, but this happens over a long enough time frame that we can consider it fixed.
  3. “Demand” is quite simply the number of people who choose each method. A person can either drive or take transit, but not both, and not neither (see above).

It’s important in looking at this to consider that “price” is not just the cost of gas or price of fares, but that is one of many components that each person determines for themselves. Just to drive home the point, let’s call it !price (“not price”) throughout the analysis. Regardless of the !price each person arrives at, a rise in the dollar cost corresponds to a !price increase, overall. Although the magnitude will be different for each person, there would be very few people who interpret paying more money as a reduction in !price.

If Metrolinx decides to start charging for parking, then the !price of transit rises. The supply of transit is fixed, so the demand for transit drops. On the day that parking fees are implemented, many transit users drive to work out of protest, but many return to transit after a few days out of familiarity, comfort, stress, or other factors, realizing why they chose to take transit in the first place.

This works in the other direction, too. If the !price of driving rises, many commuters take transit for a few days, but many return to driving due to convenience, crowding, extra time spent commuting, or frustration with transit conditions. In general, a !price increase of one commute mode while the other stays the same leads to the equilibrium shifting towards the other commute option.

What about some of the other revenue options being discussed?

  • New and/or increased taxes: Whether sales taxes, income taxes or property taxes, the !price of both commute options generally stays the same, so there is no shift in demand. Exceptions are fuel and parking taxes, which push up the !price of driving.
  • Vehicle registration fees: We’re assuming that people in this analysis own cars no matter which way they get to work. Registration fees make owning cars more expensive for everyone, but this is a sunk cost and doesn’t influence demand in the short term.
  • Road tolls, congestion charges: Obviously, tolls increase the !price of driving. If tolls are implemented on freeways and around the downtown area, people who drive to suburban transit stations will avoid the extra fees. Another option is distance-based road pricing, in which tolls are collected based on distances driven. This would raise the !price of driving more than the !price of transit, since people who drive all the way to work drive longer distances.

In the long term, an increase in demand puts pressure on the supplier to increase the supply. In this case, the supplier of both commute options is the government, and to simplify things we assume that government has limited resources and can either build more roads or more transit, but not both. For example, if there is more demand for driving, there is more political pressure to build roads instead of transit.

Of course this analysis isn’t perfect – I’m not an economist. People smarter and better paid than me are studying and releasing reports on these things all the time.

In the end, any one funding tool on its own won’t solve Metrolinx’ revenue problems. The solution will have to consider some mix of many revenue streams. To be successful in the long term, the funding model must encourage people to drive less and take transit more, not the other way around. And dismissing any individual revenue option for purely political reasons is the wrong discussion to be having.

About Greg Burrell

Greg is an accountant, cyclist and political observer living in Toronto, Canada with too many cats.
This entry was posted in Finance, Living, Toronto and tagged , , , , , , , , , , . Bookmark the permalink.