Thursday, June 27, 2013

The Problem of Public Transit Pricing

Like many Americans I often begin my work day with public transportation.  I'd like to claim that I ride the bus because of a sense of environmental duty, but the fact is it's simply cheaper than driving these days.  Assuming I use the bus two hundred times this year (one hundred days round trip) my cost per ride will be approximately thirty cents per ride. Given current gas prices it's clear the bus is a cheaper choice for me even before even factoring in maintaining my vehicle, convenience, and parking costs.  But what is the ideal price for the transit system to charge me?

Let's get this out of the way first. Public Transit systems do not pay for themselves. Almost universally fares do not meet or exceed the costs of operation (the exceptions being highly populated areas of East Asia.) Generally speaking, fares recover less than half of operating expenses for public transit. Therefore, if you believe that cities should have some sort of public transit system the question becomes not "Should the public pay for public transit?" but "How much should the public pay for public transit?"  The former question for the sake of brevity is simply going to be assumed to be "Yes." for the purposes of this posting.

How much to charge riders is actually a very difficult problem.  Before getting into specific prices let's look at what public transit does well and where it fails.

A full bus or train generates less pollution than a analogous set of cars for it's riders. This difference is magnified when considerations are given to cities movements towards hybrid buses and bus riders tendency towards older, less efficient cars. After all, few people buy a brand new car so they can then ride the bus every day.

Public transit helps provide transportation options for the elderly, disabled, young and poor who might not otherwise be able to travel to necessary locations.  A less fortunate individual who can not afford a car still requires the ability to retrieve food and attend work.  Failing to provide that option simply discourages them from providing for themselves and places the burden of their livelihood on society.

Public transit helps to alleviate road congestion, reduces wear and tear on roads, and reduces expenditures on scarce fossil fuels.

Clearly public transport has a lot of societal benefits.  But what problems are there?

At times public transport can certainly be less comfortable than a personal vehicle. Anyone who frequents public transportation has experienced the occasion of being forced to sit or stand next to an individual they'd rather avoid.  Further, at peak times overcrowding can be an unpleasant inconvenience.

Now let's move to the issue of pricing. There are several abstract price breakpoints that merit discussion. Let's refer to them as break even, cost per rider, nearly free and free. I'll define each as they're discussed.

The highest price would be the break even price.  This is the price the transit district would charge in order to recoup all operating costs. For a variety of reasons this is not a very rationale amount to charge while driving remains a reasonable option. The higher the amount charged the larger the portion of people that will find a transportation substitute.  This burdens the remainder of the customers with a larger portion of the fixed costs of operation thus causing again more to leave the system. This feedback loop continues until you're left with relatively few people paying a relatively high cost.  The same feedback is observed when examining riders who choose to use the service but not pay. The end result is honest users must either pay a great deal or use other options, and most choose to use other options. It is certainly not an optimal price unless there are no practical transport substitutes available.

The second highest price is the cost per rider. This price calculates the cost to take a rider from point A to point B and charges them that price.  It's superior to the break even price in that a rider isn't burdened by the cost of compensating for those who choose not to pay. This level of pricing tends to recoup approximately 50% of operating costs.  The unrecovered costs are lost due to individuals who do not pay and subsidized fares (for the poor, students, disabled and elderly primarily).

The nearly free pricing model has a few interesting points. First of all, it prices a ride well within the means of the majority of society.  In this case the cost of a ride is primarily psychological.  In Champaign-Urbana the most you will pay for a bus ride is one dollar.  This is an amount most people can manage with relative ease. However, the mental obstacle of "payment" certainly remains, particularly for first time riders. While a relatively minor concern, the possibility of being stranded away from home without needed payment must discourage some potential riders.

At this price essentially anyone can use the bus if they have need or desire.  Regardless, a great many people avoid it due to the "cost" involved. This price point has a great deal of access while still reducing crowding somewhat. However, there are several notable downsides. This price still requires the purchase, operation and maintenance of a costly payment network. In other words, you still have to collect fares and sell tokens/passes/etc.  Fare collection has significant costs both in terms of capital expenditure to build the network and time expended by employees to do the sales and collection. Additionally, if the goal is to get the public to use public transit then the question of "Why impose a pay barrier?" seems relevant.

Lastly is the free price point. At this point all non-geographic barriers are removed.  If you can get to a transit stop you can board without payment.  As discussed above this reduces infrastructure and employee costs somewhat.  However, it also greatly increases utilization which may lead to a less comfortable environment for everyone. Particularly during peak hours under a free model congestion can become problematic.

I have also heard the argument of "If transit is free then it will be overrun with the homeless and criminal." It is a point which I believe has little merit.  Firstly, how else are the homeless supposed to achieve housing for themselves if they cannot find and attend a job? To complain about the homeless while at the same time eliminating the potential for them to lift themselves off the streets seems ludicrous.

I propose this solution.  During peak hours of use charge at a nearly free price point. The remainder of the time operate the transit system for free.  This will help alleviate congestion when it is worst and still provide easy access to transportation to those who need it most. An unemployed man trying to get to his job interview can choose to pay a small fee to arrive during peak hours, or arrive early for free.  Meanwhile the successful lawyer who just hates trying to find a parking spot downtown can ride in relative comfort during peak hours for a cost which is trivial to him.

There is of course an increased tax burden on society. However, there are a great deal of rewards as well. Less traffic jams, lower road maintenance costs, decreased wealth transfer payments (welfare), better air quality, increased road safety, increased tax revenue and more efficient use of energy resources are only a few examples.  The only question is if individuals can stomach giving strangers a free ride (literally).

More economics next week. Until then stay safe and rationale.

Thursday, June 20, 2013

TTIP of the Iceberg

For the last couple decades European and American governments have been flirting with the idea of a trade agreement known as the Transatlantic Trade and Investment Partnership (TTIP). Several times over this period some ambitious politician has attempted to initiate negotiations and bring the decades of courtship to an end. Most recently this politician has been Barack Obama, and it seems he has the interest of the European leadership as well.

If you haven't heard of TTIP before you're probably curious why it's worth talking about. After all, trade between the Americas and Europe is already relatively easy. There are two factors, one positive and one negative, which merit giving TTIP your attention.

Firstly, there are some significant potential economic gains to be had. One of the primary goals of TTIP is to harmonize regulations between North America and Europe. Currently there is a great deal of regulatory effort duplicated on both sides of the Atlantic.  If I wished to produce fine Serrano hams for consumption in the United States and the European Union I would have to comply with the regulations of both governments. Given that either set of regulations likely produces a safe ham, why impose extraneous regulations upon the producer and require two sets of enforcement agencies?

Having to investigate and comply with multiple sets of regulations also increases the difficulty of market entry for smaller firms. If I'm a small ham producer in the United States I'm likely already complying with US guidelines. However, if I wish to expand my market into the EU I must revise my production methods to comply with their regulations as well. For many small businesses the costs of compliance will be prohibitive.  TTIP would possibly allow these smaller firms to be able to sell their products more freely on either side of the Atlantic.

There are dozens, if not hundreds of products with similar stories. Food, drugs, transportation, and even entertainment all have differing regulations which require businesses to expend effort and funds in order to reach dual compliance. Reportedly, one of TTIP's main goals is to reduce the burdens of such redundancy on producers.

I do not use the word "Reportedly" in the previous paragraph without forethought. The largest concern with TTIP at this point is a total lack of transparency.  There is, at least at this point, no known plans to make TTIP negotiations public. Likely, this very important trade agreement will be discussed behind closed doors and without much input from populations on either side of the Atlantic.  Those privileged few who will be asked for their opinions will likely be industry insiders and lobbyists, individuals with a vested interest in putting their industries wishes ahead of the public good.  For this reason TTIP may very well turn into a feeding frenzy for special interest groups.

Imagine for a moment that as a lobbyist for a sea salt manufacturer you managed to have a provision added to the agreement that cured hams must be preserved with natural sea salt.  Even if such a provision does not directly pay into your firms coffers it's clear that in this case a rising tide would lift all sea salt producer's boats. Not only that, such a provision would be of far more benefit to coastal nations than to landlocked countries.  The potential for similar self serving regulation abounds in such an expansive trade agreement that is not subject to public scrutiny.

This is not the first attempt at a TTIP like trade agreement. Nor is the adoption of TTIP by any means a foregone conclusion at this point.  However, if the negotiations are conducted fairly and with a degree of transparency there is the potential for large economic gains.  Hopefully politicians on both sides of the Atlantic exercise a degree of wisdom and prudence as they move forward with discussion.

Until next week, stay safe and rationale.

Wednesday, June 12, 2013

Grab Bag

One of the mixed blessings of multidisciplinary research is you end up reading literature from several different disciplines. On one hand this constantly exposes you to different perspectives and reveals insights you'd otherwise never encounter. On the other, it's often difficult to keep current with developments from economics, cognitive science, psychology, and neurology.

This week rather than going in depth in a single topic I'm going to instead highlight three things I read in the past week that I found interesting. Two of the readings lean more towards the economics and policy side of the academic spectrum while the third is predominantly more focused on experimental design and psychology.

The first reading is by Michael Munger and can be found here.

Munger discusses recycling from an economic perspective and raised two interesting points.  Firstly, recycling doesn't always make sense. This is a statement that is probably obvious to most economists and nearing sacrilege for many non-economists.  Munger presents the example of common recyclable glass. Glass is essentially melted sand. When it is landfilled it essentially breaks back down to a substance similar to it's gritty origin.  Sand is neither scarce, valuable, or harmful.  If that is the case why do we go through all the trouble of recycling it?  The answer of course is that we've decided as a society that recycling is moral.  Morality is a wonderful justification, but it is usually not a valid economic argument.

Munger's second point is starkly contrasted with the first. If we recycle materials that aren't economically sensible, why don't we simply let the market determine what materials are valuable enough to recycle?  The problem with this approach according to Munger is the true costs and benefits of recycling are warped by waste disposal policies.

Imagine you needed to dispose of an aluminum can. You have essentially three options. You can pay someone to take the can from you (trash disposal/landfilling). The cost of this option is pretty clear. However, much you pay the firm that takes your can away is your cost (and hopefully their fee internalizes the societal cost of disposal). You could also simply throw the can on another person's property.  Most of the time this will cost you nothing except transport costs and hopefully a bit of guilt.  Sometimes it will cost you a great deal as you are arrested for illegal dumping.  Your final option is to find someone who is willing to take your can from you and use it as a resource (recycling).  So how do we determine which of these options is best economically speaking?

Rather than launching into an involved mathematical proof (my original intent) I'll attempt some simple logic. If waste disposal is very expensive more people will illegal dump their trash.  Thus, it behooves us to keep waste disposal artificially low rather than attempt to police and clean up after those who would impart their trash burden on others. However, keeping waste disposal costs artificially low crowds out recycling as a viable option for many materials. Thus if we allowed the free market to determine what should be disposed of we would likely choose not to recycle many materials that merit recycling when waste disposal costs are unsubsidized.

Munger thus demonstrates reasonably convincingly that a free market solution likely does not work and that current recycling policies are likely non optimal.  It's an interesting read, particularly for those when enjoy complex policy decisions/

The second reading is a blog post that looks at health insurance and a novel and accessible light. You can find the original posting here.

This article isn't terribly informative for an economist but I believe it's a wonderful explanation of the problems with health insurance for a layperson. Givens attempts to explain health insurance through an imagined mechanism known as "food insurance". Using food insurance as a new perspective he highlights many problems with health insurance and how ridiculous the entire system has become.

There's not a great deal to discuss about his posting, but if you'd like to know more about health insurance failures without a great deal of dry economic terminology I think it's worth a read.

The final reading is unfortunately behind a paywall so I am not permitted to share it (see last week's posting for my opinion on that). However, I want to take a moment to discuss the cleverness of the experimental design.

The study dealt with Anorexic patients and their brain's perception of their bodies location.  Individuals with Anorexia of course perceive their bodies to be larger than reality. These researchers wanted to know how deep this perception was ingrained in the brain. In order to explore this phenomenon they took Anorexic patients and non Anorexic control patients and had them pass through doors of varying width while performing a distraction task. They found that Anorexic patients turned their bodies in order to pass through doors that were 40% larger than their bodies while control patients didn't turn their bodies until doors were 25% larger than their body or less.

This data would seem to indicate that Anorexic patient's brains believe their bodies actually occupy more space than reality. Alternatively it may be that everyone turns their bodies when passing through doorways of a certain size and those doors are comparatively larger for Anorexic individuals. Personally I do not find the data to be terribly compelling. However, cleverly designed experiments are enjoyable regardless of how solid their findings.

That's all for this week. Until next week stay safe and rationale.

Wednesday, June 5, 2013

Information Access

Generally speaking I attempt to avoid using this platform to espouse my personal opinions. When I do give my personal perspective I always make my best effort to present the other side of the argument to the best of my ability.  Today will not be such a day.  Be forewarned what follows are my personal beliefs without regard for any other views.

As a research scientist I spend a great deal of time attempting to discover or clarify specific bits of minutia that most likely do not matter in the least.  That's great! That's how science works. Occasionally someone discovers something really big and there's a flurry of new advances, but mostly it's just thousands of guys in labs across the world pushing the borders of knowledge forward a quarter of an inch at at time. I think the game minesweeper is a really good analogy. Sometimes you click a box and a large portion of the game board is opened up, but most of the game is placing flags or clicking individual boxes that don't gain you nearly as much knowledge of the board state.

Yet, for all the laboring that goes on (a great deal of it funded with public tax dollars) it's unlikely that you have access to it.  Suppose every year one hundred studies are conducted. In my experience the public will have easy access to approximately ten of those. The remaining ninety will either not be submitted to be published, rejected by publishers or restricted behind an obscenely expensive pay wall. Let's look at each of these reasons why the public is refused access to research they've funded in turn.

The Study is not Submitted for Publication

At times research goes wrong, does not reveal anything of note or is flawed.  If in the judgement of the researchers a study would not contribute to the understanding or advancement of a discipline it is generally not submitted for publication.  It would be preferable if the study had not been conducted at all in the first place, however researchers make mistakes just like everyone else.

Here's an example.  Suppose a researcher thought perhaps if you drove a DeLorean up to eighty eight miles per hour you'd travel through time. It's a pretty outlandish idea, but if he's right it'd be a rather large discovery. After a brief preliminary experiment he finds that such phenomenon are restricted to Hollywood blockbusters circa 1985. At this point he could write up his research and submit it to the journal of automotive time travel. But to what end? A paper informing people that DeLorean based time travel isn't possible tells no one anything they didn't already know.  It's likely better to improve the signal to noise ratio within the discipline by keeping the results to yourself.

In summary, as long as researchers are honest and diligent this reason for research being restricted access seems prudent. To be clear however, by restricted access I simply mean not published. I do not mean the information should be hidden from anyone who desires it i.e. not published behind a pay wall.

The Study is Rejected for Journal Publication

There is certainly nothing wrong with academic journals restricting what they publish.  After all, the entire purpose of journals is to highlight the most important and influential papers in a field.  Unfortunately numerous studies have indicated that journals tend to have a significant publishing bias.

In general academic journals tend to publish studies which are potentially headline grabbing, novel, or controversial.  This doesn't seem particularly unusual, however there is a subtle problem.  As every researcher knows any given study has a potential for error. If a study gives an astounding result it is far more likely to be published, but it may also be incorrect.  Follow up studies to reaffirm the hypothesis are subsequently less likely to be published (as they are no longer novel) even if they refute the original.

For example, suppose we conducted a study to test whether honey bees could understand human speech. We construct a box in which we place a bee and then give it commands while recording it's actions. Amazingly, after dozens of tests we crunch the numbers and determine that statistically the bee seems to be doing what we command most of the time. This study fits all three of our characteristics for publishing. It is novel, headline grabbing and controversial. Because it is controversial many labs attempt to replicate the study. All of course determine that bees do not in fact understand human speech. However, these studies are no longer novel, are not headline grabbing and aren't terribly controversial so are less likely to be published.

The end result is that for researchers seeking publishing credit it's often better to be associated with flashy pop science studies than with mundane research that actually advances the discipline. In other words if name recognition is your goal it's better to research something unlikely and hope to get lucky than to affirm what is already suspected.

Using journals as an information filter is useful. It highlights studies that are provocative. However, it also limits access to a lot of information that should be available. It would be preferable for studies to be published to an open platform that journals could then point to, rather than journals being themselves the source of reference for most people.  Such a platform would allow journals to still serve their roll as information filters while permitting the public and academics alike easy access to refuting opinions when necessary. 

Pay Wall Restriction

This is, by far, the most egregious offense in terms of information access. Publicly funded research, conducted by academics drawing their salary primarily from public funds, written by the same academics, reviewed by similar academics, restricted for the profit of private corporations. 

Listen, I'm an economist. I'm all for companies making a fair profit. But this situation is akin to an oil company drilling for oil in Central Park, making millions of dollars, and when the public complains declaring "well how else are we going to pay for our oil drilling equipment?" Last year Harvard said they could not afford to pay increasingly large journal fees which in 2012 amounted to $3.5 million dollars. It's ludicrous that universities have to pay such costs for research for which they are a primary contributor. What is the service provided by the journals for this fee? They neither create nor review the studies. Essentially the entirety of their service is organization and printing, the latter of which is increasingly unimportant in the digital age. We are no longer in an era of specialized typesetters and printers. A variety of software very nearly automates these processes to the point that minimal training is required.  So for over three million dollars annually journals; decide what to publish, put writers in contact with reviewers, and compile the journal. If major universities could simply get on the same page they could provide the same services themselves far cheaper and more efficiently.

The situation is even more dire if you're an individual not associated with a university.  Want access to a three page paper published in a restricted access journal?  Be prepared to pay a minimum of $30. Did you find that the paper didn't have the information you'd hoped? Tough luck, prepare to pay $30 more to try again. And thirty dollars is at the low end of fees. Access to some articles may run you as high as $125 or more. Do you just want to keep up with the developments in a particular field? Be prepared to pay hundreds of dollars annually for digital only versions and possibly thousands for print versions. Of course you are forbidden from showing others your journal articles as those prices are for individual use only.  

I truly believe journals provide a valuable service. However, at this time I believe it's a service they're being over payed for when they're doing little of the work.  Researchers are already payed (mostly by public funds) for creating and reviewing the content. Why are journals receiving such large rents for doing so little?

I will end my tirade there. Again, the above is entirely my one sided opinion and I'm sure that the journal publishers have their own perspective.  Still it irritates me to no end that I have access to an endless sea of scientific research while the general public does not.  Hopefully some day soon someone will reform this bizarre system.

Until next week, stay safe and rationale.