This research uses time-series data from 1948 to 1997 for the Chicago Transit Authority (CTA) to
answer two related questions that have interested urban mass transit economists for many decades.
The first concerns the objectives of management, and the second is the relative importance of
various endogenous and exogenous factors in the industry's financial decline.
In current prices, the CTA earned an $84 million operating surplus in 1948 and suffers a
$458 million operating deficit today. Decomposing this financial decline into its constituent
parts suggests that a $399 million loss was caused by exogenous demand factors that have worked
against transit in cities, and a $484 million loss was due to increased unit costs.
Partly counteracting these negative effects were decisions made by the CTA to reduce bus service
and raise real fares leading to positive financial effects of $182 million and $192 million
respectively. Most of the increases in unit costs occurred between 1965 and 1980 when subsidies
were increasing rapidly, and organized labor shared in the cash infusion.
The CTA's second major failing, after the failure to contain costs in the 1970s, has been the
failure to get to grips with balancing the provision of bus service against the fall in demand.
There is plenty of evidence that throughout its existence, the CTA management has found it to
be politically more feasible to raise fares than reduce service levels to the extent necessary.
This confirms previous theoretical and empirical work that pursuit of a service-output
maximizing objective, given a fixed level of subsidy, results in lower levels of social welfare
than if the agency explicitly maximized ridership or social welfare. The citizens of Chicago
would be better off if service levels were reduced and the money saved was channeled into
lower fares.
"Management Objectives and the Causes of Mass Transit Deficits" was published in the Transportation Research A Volume 38:3 (March 2004), pages 181-199. Link to the paper on Science Direct. You can also view an earlier manuscript version [22 pages, 245 kb PDF]. A postscript is also available that updates the analysis through to 2004 [12 pages, 206 kb PDF].
I would be pleased to answer any detailed questions that you may have on this paper, and welcome the opportunity to add what I can to informed formed public debate of this issue.
Return to Ian Savage's Home Page
