CURB RIGHTS

1. CURB RIGHTS A Foundation for Free Enterprise in Urban Transit By: Daniel B. Klein Associate Professor of Economics at Santa Clara University Adrian T. Moore Policy Analyst at the Reason Foundation, Los Angeles Binyam Reja Graduate Student at University of California, Irvine. A Presentation By: Kristi Heitt Leland Levin Cara Price

2. Curb Rights Road Map Section One: Diagnosing Traditional Transit Section Two: Transit Markets Improperly Regulated and Improperly Deregulated Section Three: Property Rights and Route Based Transit Markets Policy Recommendations and Conclusions

3. Limiting Cases for the Continuum of Social Governance Fig. 1-1

4. Goal of Curb Rights • Curb Rights calls for the reform of public transit to take shape within the order of free enterprise that is framed by a system of property rights.

5. Example of Exclusive Curbs and Commons Exclusive Bus Zone Exclusive Bus Zone Commons Commons Street Exclusive Bus Zone Exclusive Bus Zone Commons Commons Fig. 10-1

6. Goals of the Authors • To reveal how the forms and effectiveness of transit service depend on the character of property rights as they exist in transit markets. • To use the knowledge gained about the status of property rights in existing transit markets to devise new forms of governance for transit.

7. Section One Diagnosing Traditional Transit

8. Understanding Traditional Transit • To understand traditional transit, three areas must be examined: • The Triumph of the Automobile • The Fizzle of Traditional Transit • Why Traditional Transit Fizzles

9. The Triumph of the Automobile • “Edgification”: the development of areas that lack definite urban form yet nonetheless function as cities. This is caused in American cities by: • Prosperity • The rise of the private automobile

10. Automobiles Satisfy All of Travelers’ Values • In order to compete with automobiles, transit must emulate their characteristics. • Therefore: • “[A] property rights proposal would favor transit services more like the private automobile, blurring the distinction between the private car and mass transportation.”

11. Benefits Superior flexibility Privacy Accommodation of diverse lifestyles Speed Access Affordability Problems Congestion Air pollution Benefits and Problems of Automobiles

12. Short trip times Avoidance of transfers and waiting time Door-to-door service Reliability Comfort Seat availability Storage space Security Flexibility Privacy Autonomy Characteristics of the Travel Experience That Travelers Value:

13. The Fizzle of Traditional Transit • History of the Transit Fizzle: • Decline begins in the early 20th century. • During WWII, ridership surged, and government regulations imposed restrictions. • In 1950s transportation shifted from streetcars to motorbuses. • In the 1950s and 1960s household incomes increased and people bought cars, and moved to the suburbs. • Urban Mass Transportation Act of 1964 provided funding for the purchase of local mass transit systems. • Market trend since 1960s has been against mass Transit.

14. Public Transit Operating Costs and Passenger Trips, 1960-1992 Fig. 3-1

15. Why Traditional Transit Fizzles • Two bodies of thought attempt to explain the fizzle of traditional transit: • Hayekian view: • Emphasizes the importance of understanding local conditions. • Assumes public officials are scrupulous and diligent. • Public Choice: • Self interest and incentives influence the actions of government. • Assumes public officials are not especially scrupulous.

16. Hayekian Critique of Traditional Transit • Centralized authority makes it easier to integrate service, coordinate parts, and ensure reliable schedules. • Economic terrain consists of particularistic conditions that are constantly changing. • Hayekian theory warns that unified planning will reduce the innovation that comes with specific local knowledge.

17. Compared to the Free Market, Public Agencies Have Three Limitations. • Regulation or subsidization of the public system serves to deter competitors. • The public agency has little knowledge of local markets. • The public agency is less responsive.

18. Compared to the Public Agencies, the Free Market Has Three Advantages. • The free market makes use of existing dispersed knowledge of local conditions. • The free market permits flexibility in response to perceived changes in local conditions. • The free market fuels the discovery of opportunities that go unnoticed by public agencies.

19. Public Choice Critique of Traditional Urban Transit • Corrective government action may show imperfections more severe than those of free enterprise. • Lurking behind official goals of serving the public are personal goals of public servants. • The official goals of a transit agency are multiple, confused, and conflicted.

20. In Summary “The intervention dynamic [of government in transit] leads to the decline of the industry, public takeover, further decline, and finally re-privatization, bringing the situation back to the starting point.”

21. Section Two Transit Markets Improperly Regulated and Improperly Deregulated OR What Not to do When Designing an Urban Transit System

22. Transit Free-Markets • All of the systems which we will discuss had some measure of success, however they all also had flaws. • In order to ensure the best possible service and the lowest price we must ensure competition, this requires an approach quite different from those discussed previously. A Property Rights Based System Is Needed

23. Jitneys and Interloping • Jitneys: small unscheduled vehicles plying a route. • Four different Jitney experiences will be explored: • Jitneys in the United States: 1914-1916 • Jitneys in Less Developed Countries • Illegal Jitneys in the United States • Legal Jitneys in the United States

24. Jitneys in the United States: 1914-1916 • In 1914, the prevalent form of urban transit was the tracked streetcar. • Private automobile owners would drive the routes of the street cars, and pick up passengers for a nickel. • Jitneys adversely affected the revenue of streetcar companies, LA trolley companies lost $3 million a year. • The jitneys were making more than that however, and serving customers that the trolleys didn’t. • The government, at the behest of the trolley lobby, cracked down on these jitneys, and they faded from the scene.

25. Jitneys in Less Developed Countries • In LDCs, especially those in Latin America, jitneys are very common. • These jitneys are usually in competition with subsidized bus services. • Jitneys are sometimes granted official recognition and sometimes not, but in both cases they ignore official rules. • Jitney operators tend to form cartels and exclude competition, thus they have the same problems as government sponsored transit monopolies.

26. Illegal Jitneys in the United States • Illegal jitneying in the US never persists on a small scale, it either persists as a significant force or is wiped out by law enforcement. • Illegal jitneying in the US comes about as a result of a shock to the system, normally a strike (in the case of NYC) or a sudden loophole in the law (as in Florida). • While these two experiences in the US are unique, they go to prove that unsubsidized transit in the US can succeed and prosper.

27. Legal Jitneys in the United States • There are a few place in the US (Atlantic Cit, San Diego, Los Angeles, San Francisco) where jitneying is legal. • Legal jitneys tend to fail for a number of reasons: • They tend to interfere with scheduled service, thus provoking crack downs. • They cannot compete with the subsidized fares of city busses. • They cannot survive in thin markets.

28. Edge Transit Services in the United States • These are transit services that operate on the ‘edge’ of route based services. • There are four major types of edge transit service: • Illegal (“Gypsy”) Taxicabs • Taxis (and Deregulation of Taxis) • Commuter Transit Services • Non-commuter Door-to-Door Services • All of these types of transit go to show that private transportation can prosper and do well, however as all these systems lacked protections for property rights, they were not perfect.

29. Bus Privatization and Deregulation in Britain • The 1985 Transportation Act deregulated all bus services in Britain, except in London, making all public lines private companies and allowed competition to be introduced in the deregulated markets. • This process resulted in imperfect deregulation and a lack of competition because the reforms were enacted without a guarantee of property rights. • If reform is to work, a system must be enacted which is signifigantly different from Britain’s.

30. Contracting Out Bus Service in the United States • In the 1980s the Reagan administration required transit agencies to consider whether services could be provided by the private sector. • Most of the services which are contracted out are dial-a-ride and para-transit services, not regular bus service. • This represents a form of competition, where companies are forced to compete for a contract, but the inherent advantages that are held by the incumbent contractor function to prevent any great deal of innovation after the first few years. • While contracting out may be good for a while, it is not as good as true privatization.

31. Transit Markets Conclusion • All of the systems which we will discuss had some measure of success, however they all also had flaws. • In order to ensure the best possible service and the lowest price we must ensure competition, this requires an approach quite different from those discussed previously. A Property Rights Based System Is Needed

32. Section Three Property Rights and Route Based Transit Markets And Policy Recommendations and Conclusions

33. Transit Market Theory • Two core premises: • Jitneys have market advantage over scheduled service • There are route-specific sunk costs in scheduled service • Transit Market theory considers market conditions for 2 variables: • Status of curb rights along the route • Volume of passenger demand on the route

34. Jitneys vs. Scheduled Service • Jitneys • The Market Advantages. • The Market Disadvantages. • Free wheeling jitneys: Market Parasitism. • Scheduled Service • If jitneys are free to interlope, they will dissolve any scheduled service. • Without scheduled service, there may be fewer riders congregating at the curb and thus there will be fewer jitneys.

35. The Absence of Curb Rights • The Thick Market: • Can Jitneys be sustained in the absence of scheduled service? • (YES) The Jitney Cascade Is Sustained. • The Thin Market: • The Dissolving Anchor. • Setting up scheduled bus service entails sunk costs. • “Tragedy of the commons.”

36. Transit policy operates at 2 extremes: • Exclusive monopolies (for bus service) • No curb rights protection (allows jitneys) • Solution • Property Rights Proposal for Transit Markets • A policy with: • A policy with a limited degree of exclusive rights (to prevent dissolving anchor) • The permission of freewheeling competition on the route

37. The General Idea of Curb Rights • System that guarantees some exclusivity and allows jitneys • Must be adapted to particularistic conditions • 2 classifications of curbs: • Exclusive (bus zones) • Commons

38. Example of Exclusive Curbs and Commons Exclusive Bus Zone Exclusive Bus Zone Commons Commons Street Exclusive Bus Zone Exclusive Bus Zone Commons Commons Fig. 10-1

39. Temporal Demarcation of Curb Rights Property Rights Assignments to Curb Zones 1 2 3 4 A Commons A Commons 8:00 a.m. B Commons B Commons 8:15 a.m. A B A B 3:00 p.m. B B B B 3:30 p.m. Fig. 10-2 Peak Off-peak

40. Curb Zones • Auctioning Curb Zones • Zones sold/auctioned off by authorities as leases • Curb Zone Entrepreneurs • Leaseholders sublet

41. Four Participants in Curb Rights System • Local officials • Curb zone leaseholders • Transit operators (bus companies, jitneys, etc.) • Passengers These parties will all follow the principles of explicit property rights and contracts (not government ownership or regulation)

42. Further Issues in Curb Rights • Enforcement of Curb Rights • Emergence of Staging Areas on Private Property • Governing the Commons • Curb Zone Robber Barons • Government Imperfection in Creating Curb Rights

43. Ideas for Transition Policy • Curb rights can be incorporated into existing transit routes

44. Why curb rights? Reliable, scheduled service AND Real competition • Problems of transit that are avoided: • Lack of on-the-road competition, schedule jockeying, jitney interloping Curb rights are an antidote to political intervention, government takeover, and transit service deterioration

45. Criticisms against market-based transit • The problems that curb rights will solve: • Cutthroat Competition • Failures to Achieve Economies of Density • Dis-coordination of Transit connections • Failures to provide good consumer information • Curbside Conflict • Inadequate Passenger Facilities Property rights system should largely dispel these traditional criticisms of free-market transit

46. Conclusion: Curb rights introduces the combination of monopoly and lawless competition • Two features of market process • Competition • Discovery of new opportunities for service based on entrepreneurial changes of local conditions • Incorporation of both kinds of markets: • Scheduled (unsubsidized) bus service • Unscheduled jitneys

47. Policy Proposal: • Property rights system needs to become the core of transit policy • Proposal: Create exclusive and transferable curb rights (to bus stops and other pickup points) leased by auction. • This would ensure both the availability of public transit and the benefits of a free market system.