Report Published: Organizing Transit in Small Urban and Rural Communities

A new SURTC study conducted by David Ripplinger provides information and a decision-making framework for designing and administering rural transit policies given limited public resources. Using data from transit agencies in rural North Dakota, Ripplinger estimated the benefits of different service alternatives, evaluated the justification of government subsidy of rural transit on the basis of its cost structure, and investigated the most efficient regional organization of transit.

The study investigated whether it would be more cost efficient for a single existing agency to expand service and provide both fixed-route and demand-response service or if it would be more efficient to have multiple operators in an area providing service. If service is to be increased within the service area of an existing transit agency, the study found it is more efficient for the existing agency to provide that service than to create a new agency to do so. If new service is to be added outside the service area of an existing agency, the more efficient option is influenced by the size of the existing agency. It was found to be more efficient for small transit operators to increase service into a new area than for a second agency to do so, but for larger regional systems, the study found it may be more efficient for a second agency to provide the new service. The study also found it is more efficient for small transit systems to provide both fixed-route and demand-response service than to have two different agencies specializing in each. However, for larger regional systems, the results differ, and it may be more efficient to have providers specialize in one mode. In many cases, a single transit agency operating as a monopoly was found to provide service at a lower cost than two transit agencies would, but this was not always the case.

The findings and implications are directly applicable to rural transit in North Dakota and should be helpful in informing future federal policy as well as rural transit policy, service design, and operation in other states.

The publication can be downloaded at the following link: Organizing Transit in Small Urban and Rural Communities. The study was sponsored by the University Transportation Centers Program of the U.S. Department of Transportation. Questions related to the research should be directed to David Ripplinger, who can be reached at david.ripplinger@ndsu.edu

Presentation Recordings Posted Online

Presentation recordings for three recent SURTC research projects are available online. The recordings summarize the research methods and major findings from each of the studies. These presentations were also given recently at the Transportation Research Board (TRB) Annual Meeting. Click on the links below to view the recordings.

• Marginal Cost Pricing and Subsidy of Transit in Small Urban Areas
• Travel Behavior of the Lone Rangers: An Application of Attitudinal Structural Equation Modeling to Intercity Transportation Market Segmentation
• Transportation, Distance, and Health Care Utilization for Older Adults in Rural and Small Urban Areas

Transportation Seminar: Marginal Cost Pricing and Subsidy of Transit

As part of UGPTI's Transportation Seminar Series, SURTC researcher Jeremy Mattson will present a seminar on Marginal Cost Pricing and Subsidy of Transit.  This seminar, which is based on a recently completed study, will present results from a survey of small urban transit agencies regarding recent changes in service levels, fares, and funding; discuss the rationale for subsidizing transit; present cost data for small urban transit systems; focus on economies of scale, marginal cost pricing, and transportation externalities; and present results from a cost model. The seminar will be held Nov. 1, 2011 at 2:00 p.m. in Room 422 of the IACC building on the campus of North Dakota State University. Shortly after the conclusion of the seminar, links to the presentation and a recording of the presentation will be posted online on the Transportation Seminar Series website.

Marginal Cost Pricing and Subsidy of Transit in Small Urban Areas

A SURTC study conducted by Jeremy Mattson and David Ripplinger found that small urban transit agencies experience increasing returns to scale and density. This implies that increasing service levels will result in lower average costs. The report, titled "Marginal Cost Pricing and Subsidy of Transit in Small Urban Areas," has been published and is now available online.

This study analyzes economies of scale and density as a rationale for subsidizing transit agencies in small urban areas. A long-run cost model is estimated using data for 168 transit agencies that directly operate fixed-route bus service in small urban areas. Using vehicle revenue miles as transit output, results show that small urban transit agencies experience economies of scale and density. A full cost model was estimated that included the addition of external costs, such as environmental effects, and benefits. A benefit of increasing service levels is a reduction in rider waiting times. The study attempted to quantify this benefit. Results from the model were used to estimate the marginal social cost of providing service. Setting the fare equal to marginal social cost would maximize social welfare.

The results provide justification for subsidizing transit. The needed subsidy is calculated as the difference between the revenue generated by the optimal fare and that needed to maintain efficient levels of production. The rationale for subsidies is an important issue as many agencies have experienced recent reductions in operational funding.

Included in the report is a survey of transit agencies in small urban areas regarding recent changes in fares, service levels, and funding. The survey found that nearly half of these transit providers have either reduced service or increased fares over a two-year period, primarily because of decreases in operational funding.

For more information, contact Jeremy Mattson at jeremy.w.mattson@ndsu.edu. The publication can be downloaded at the following link: Marginal Cost Pricing and Subsidy of Transit in Small Urban Areas (pdf)