When it comes to urban mass transit, economists often find themselves arguing that, the ratio of benefits to costs in most is far better for buses than for rail-based system--unless there is a densely populated urban core where nearly-full trains can run a very frequent intervals. Matthew Turner explains why in "Local Transportation Policy and Economic Opportunity," written for the Hamilton Project at the Brookings Institution (January 31, 2019).
The main theme of the paper is to think about the current status of U.S. highways, public transit buses, and urban rail cars, and offer some policy suggestions. I'll mention a few of those thoughts in a moment, but here's what Turner has to say about the opinions of economists on light rail and subways (citations omitted):
Economists have long argued against subways and light rail except as a last resort. This argument follows from the high cost of building fixed-rail urban transport. The following example will illustrate this logic. In 2015 the city of Providence, Rhode Island, considered a short, light rail line. Construction of the track and purchase of the rail cars was forecast at about $100 million in all. The system was projected to carry about 2,600 riders per day. The city intended to finance the project with bonds that would pay 3.5 percent interest. For the sake of illustration, suppose the city only paid interest on the cost of the system, and never paid down the principal. In this case, interest on the bonds would be $3.5 million per year. Now suppose that the system achieved its projected ridership and carried 2,600 riders per day for each of the approximately 250 workdays each year. In that case the system would carry about 650,000 people per year. Dividing the annual bond payments by the number of annual riders works out to about $5.40 per rider in interest—and this is before paying to operate the train or maintain the system. If the operating and maintenance costs of this system were the same as for Rhode Island’s bus system, then those costs would be about $5 per rider. (The annual budget of Rhode Island’s bus network is about $100 million and it carries about 20 million passengers per year.) Thus, the proposed system would likely have cost about $10 per rider. With a fare of $2 or $3, most of this cost would have come out of general revenue.
These calculations make clear why economists so often argue against light rail and subway construction projects. They are so expensive that ridership can only begin to cover construction and maintenance costs if the systems operate at close to their physical capacity most of the time; that is, if there are enough riders to fill up the cars when they run on two- to three-minute headways for many hours per day. Since most proposed projects do not meet this standard, economists generally argue against them. Buses can usually move the projected numbers of riders at a fraction of the cost.
My metro area of Minneapolis/St. Paul has been slowly building some light rail lines. When I drive by them, I do a mental comparison to the costs of building dedicated lanes for buses, and shudder a bit. But as Turner points out, the general pattern of urban mass transit in recent decades has tended to be away from buses and in the direction of rail.
The number of urban buses and their average age hasn't changed much in the last couple of decades. But the figure on the left shows that the number of passenger trips on urban buses has been falling, and the figure on the right shows average trips per buss have been declining for the last few years and urban buses typically run at about 20% of capacity.
The other thought is to emphasize an old lesson about urban traffic congestion, which is that most congestion is limited to specific time windows. When new road construction untangles a "hot spot" where intertwining lanes of traffic get tangled ever day, it can be useful in reducing congestion. But in general, building more lanes for auto traffic tends to bring more people to the highways during those time windows, with little effect on congestion. It doesn't pass a cost-benefit economic sense to (say) double the number of highway lanes, but then to make full use of those lanes only a few hours a day for five days out of the week. So the question becomes how to spread out the flow of traffic over more hours. Turner writes (citations omitted):
At its maximum capacity, an interstate highway lane can carry about 2,200 vehicles per hour. Even if we restrict attention to the period from 5:00 am to midnight, this means that each interstate ighway lane can carry about 37,000 vehicles per day. By comparison, urban interstates near the end of our sample period reach AADT [average annual daily travel] levels of about 13,000. Even this high level is less than 40 percent of the daily maximum capacity of these lanes during waking hours. ...
As severe as highway traffic congestion may be, it is not strictly a problem of highway capacity: Daily rates of travel are well below the physical capacity of the interstate. Highway congestion is a problem of having sufficient capacity at peak times. Nearly all interstate highways have surplus, unused capacity at off-peak hours. Obviously, capacity at midnight is not a perfect substitute for capacity at 6:00 p.m. However, capacity at 7:00 p.m. is not so different from capacity at 6:00 p.m., and capacity at 8:00 p.m. is not so different from capacity at 7:00 p.m. Together with the fact that travel speed on a congested highway is highly sensitive to the number of drivers using the road, this means that policies to spread travel out over the day, even slightly, can have large effects on congestion. Thus, policies to exploit slack, off-peak capacity deserve serious attention.One possible answer for spreading out the traffic to off-peak times is a congestion charge (discussed here and here. for example). Another might be to encourage a number of employers to vary their regular hours, sliding them forward or back in the day. Another might be to enact rules that keep most big trucks off the urban roads during the most congested crunch time.
Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.