From: pshuang@athena.mit.edu (Ping-Shun Huang)
Subject: Re: Drinking and the MBTA was Re: Sunday Liquor Sales
Organization: Massachusetts Institute of Technology
	<BZS.92Dec22154941@world.std.com>
	<1992Dec23.164843.9336@m5.harvard.edu>
Distribution: ne
Date: Thu, 24 Dec 1992 03:23:25 GMT

In article <1992Dec23.164843.9336@m5.harvard.edu> borden@head-cfa.harvard.edu (Dave Borden) writes:

 > My counter to the objection raised that competing private service
 > will take revenue away from the T on the profitable lines while not
 > bothering to run the unprofitable ones is that the unprofitable T
 > lines will require the same subsidy in any case - the only difference
 > is whether that subsidy will come from T fares from profitable lines
 > or from general tax revenues.  I say, take it from general tax
 > revenues, if that proves to be necessary, and allow the competing
 > lines to run.  We'll all have more options that way, without having
 > to counteract the policy goal of decreasing automobile usage.

I'm failing to understand the economics behind this aspect of your
argument. Let's say that out of the surface bus lines that the T
currently operates, we form three categories: (A) profitable, even
assuming any inefficiency on the MBTA's part; (B) not profitable for the
T, although a private bus line might be more efficient and make these
profitable; (C) not profitable, any way you look at it.

Status quo: the MBTA runs (A), (B), and (C), with no major competitors.
(We still have no conclusive info about whether any competitors would be
permitted, right?) Let's assign some numbers -- completely arbitrary,
just so we can think about it. Suppose (A) generates 10 gazillion (takes
in 30, costs 20 to run), (B) costs 10 gazillion (takes in 20, costs 30
to run), and (C) costs 10 gazillion (takes in 10, costs 20 to run), so
the MBTA needs to be subsidized for 10 gazillion dollars by the
communities in the Boston area. Now, introduce Company A, permitted to
run competing bus lines. Company A establishes routes parallel to those
in categories (A) and (B), and wins over half the fare-paying public in
each category, not unlikely considering that everybody is of course
peeved at having to subsidize the MBTA and therefore seizes any straw of
an alternative. We won't bother analyzing whether Company A is making a
profit on this business, let's just look at the MBTA's new balance
sheet. (A) still costs 20 to run, presumably, but only takes in 10, (B)
still costs 30 to run but now takes in only 10, and (C) still costs 20
to run and takes in only 10. We now have an MBTA which requires 30
gazillion in subsidies, all else being equal, even though customers are
still shelling out about the same amount in fares every year.

This is clearly not a win.

However, the "all else being equal" is a non-trivial statement. Clearly
the MBTA could start cost-cutting based on reduced peak-ridership, but I
submit that reducing peak-ridership doesn't help much, e.g. the marginal
cost of providing additional capacity on any given line is relatively
low. We've now created a situation where the same amount of service is
being provided by two providers... I submit that at the scale we're
speaking of, this is less efficient than having one efficient provider,
which takes us back to the public utilities model I proposed a couple of
posts back: license a private company to run the services now provided
by the MBTA, with the stipulation that they continue reasonable levels
of service to all geographical areas, obtain some level of subsidy from
all the communities involved (to be reevaluated every year as to the
allocation, not the total amount), and regulate fare raises. The company
would then not have the possibilities of gouging the customers depending
on a monopoly supplier, or depending on additional subsidies to bail it
out of debt, and therefore presumably would run a leaner operation than
the MBTA. Doubtlessly this scheme has many draw-backs, too.

--
Ping Huang (INTERNET: pshuang@athena.mit.edu), probably speaking for himself

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