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Ian Savage
Research on Transit Costs
1. Savage, Ian (1997). Scale economies in United States rail transit systems.
Transportation Research A 31(6):459-473.
The research uses Federal Transit Administration "Section 15" data
to investigate the operating costs of 13 heavy-rail and 9 light-rail urban mass
transit systems for the period 1985-91. A transcendental logarithmic
technology is used to investigate various types of economies of scale. The
principal findings are:
- Large economies of density. Adding additional trains, and passengers, to
an existing network leads to a less than proportionate increase in short-run
variable costs for nearly all systems. Estimates of economies of density incorporate
the effect of changes in output on average load factors. The exceptions are three larger systems
that have track that is heavily utilized and offer a relatively flat level of
service across the day and serve markets where passengers undertake short
trips. When the cost of way and structure maintenance and capital costs of way, structure
and rolling stock are incorporated, economies of density become more pronounced
for all systems.
- Constant returns to system size in short-run variable costs. A similar
pattern of system size economies persists when the cost of way and structure maintenance and
capital costs of way, structure and rolling stock are incorporated. The sole
exceptions are newer heavy-rail systems catering to longer-distance commuter
traffic. These systems have a high ratio of peak to off-peak service.
Diseconomies of system size are found for these systems.
- In making these calculations allowance was made for the effects of
different levels of peaking of service and average journey length.
Correction was also made for the use of light-rail technology. Newer systems
which invested in automation, such as automatic train control and
automatic ticketing systems have reduced their variable cost by 27% compared
with comparable traditional systems.
There are four major public policy implications:
- Calculated economies of density can be used to estimate marginal cost.
When comparison is made with fares, most of the least expensive systems are able to price at, or in excess of, marginal costs. However, more expensive systems are unable to pass these costs along in prices.
- There has been considerable controversy about the accuracy of cost and
revenue estimates used when seeking funding for extensions to existing systems
and the building of entirely new systems. The equations estimated in this
paper provide a possible method for the federal government to evaluate
operating cost estimates.
- Currently some smaller communities are proposing limited light-rail
schemes. These very small schemes should be able to operate with similar
average costs to those systems found in larger cities.
- The constant economies of system size for large systems suggests that
there would not be cost disadvantages if the larger systems -- Boston,
Washington, D.C., San Francisco, Chicago, and New York -- were divided into
smaller operating units to permit privatization.
Link to the paper on Science Direct. You can also view the published paper [15 pages, 925 kb PDF].
2. Savage, Ian (1988/9). The analysis of bus costs and revenues by time period.
Transport Reviews 8(4):283-299 and 9(1):1-17.
Bus operators serve many markets characterized both spatially and temporally. An objective
of these companies is to tailor fares and service provision to these myriad markets. The past 20 years
have seen an unprecedented desire by bus companies to analyze costs and revenues at the micro level
to permit this tailoring. This was initially on a route-by-route basis and later on a time-of-day/day-of-week--or time period--basis. The methodology was developed in three stages: (1) Apportioning
methods for allocating costs and revenues to route level were developed in the UK and the US in the
period 1968 to 1974; (2) Further developments post 1974 were chiefly in the US and Australia and
concentrated on prediction methods for incremental costs resulting from expanding/contracting
service at particular times of day; and (3) There was a resurgence of interest in the UK post 1979
with analysis of both allocated and incremental costs and revenues. This assumed great practical
interest with deregulation of the industry in 1986.
The first part of this two-part paper traces the development of the literature over the period, and
indicates that costing methodologies have been extensively analyzed but revenue methodologies are
still in their infancy. On the costing side, two methodologies, one from the United Kingdom and one
from Australia, are available. The second-part of the paper describes these two techniques and in
comparing them identifies a trade-off being predictive accuracy and simplicity of application. The
paper concludes that the development of micro-level analytical techniques has proved to be both
practical and desirable. Areas for potential future research are also identified.
I would be pleased to answer any detailed questions that you may have on these
papers, and welcome the opportunity to add what I can to informed formed public
debate of this issue. Please
send an e-mail including your name and postal service address to request a
package of the complete papers. I would also be interested in knowing your professional
connection with transit costing issues.
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