Multimodal Pricing and the Optimal Design of Bus Services: New Elements and Extensions Alejandro Andrés Tirachini Thesis submitted in partial fulfilment of the requirements for the degree of Doctor of Philosophy in the Business School, University of Sydney, Australia July 2012 Institute of Transport and Logistics Studies The University of Sydney Business School The University of Sydney NSW 2006 Australia Abstract This thesis analyses the pricing and design of urban transport systems; in particular the optimal design and efficient operation of bus services and the pricing of urban transport. Five main topics are addressed: (i) the influence of considering non-motorised travel alternatives (walking and cycling) in the estimation of optimal bus fares, (ii) the choice of a fare collection system and bus boarding policy, (iii) the influence of passengers’ crowding on bus operations and optimal supply levels, (iv) the optimal investment in road infrastructure for buses, which is attached to a target bus running speed and (v) the characterisation of bus congestion and its impact on bus operation and service design. Total cost minimisation and social welfare maximisation models are developed, which are complemented by the empirical estimation of bus travel times. As bus patronage increases, it is efficient to invest money in speeding up boarding and alighting times. Once on-board cash payment has been ruled out, allowing boarding at all doors is more important as a tool to reduce both users and operator costs than technological improvements on fare collection. The consideration of crowding externalities (in respect of both seating and standing) imposes a higher optimal bus fare, and consequently, a reduction of the optimal bus subsidy. Optimal bus frequency is quite sensitive to the assumptions regarding crowding costs, impact of buses on traffic congestion and congestion level in mixed-traffic roads. The existence of a crowding externality implies that buses should have as many seats as possible, up to a minimum area that must be left free of seats. Bus congestion in the form of queuing delays behind bus stops is estimated using simulation. The delay function depends on the bus frequency, bus size, number of berths and dwell time. Therefore, models that use flow measures (including frequency only or frequency plus traffic flow) as the only explanatory variables for bus congestion are incomplete. Disregarding bus congestion in the design of the service would yield greater frequencies than optimal when congestion is noticeable, i.e. for high demand. Finally, the optimal investment in road infrastructure for buses grows with the logarithm of demand; this result depends on the existence of a positive and linear relationship between investment in infrastructure and desired running speed. ii Statement of Originality This is to certify that, to the best of my knowledge, the content of this thesis is my own work. This thesis contains no material previously published or written by another person unless due reference to that material is made. This thesis contains no material that has been submitted for the award of any degree or diploma in any university or other institution. Alejandro Andrés Tirachini 03 July 2012 iii Preface This thesis is the result of the effort of several people and institutions that have taught and supported me in so many ways, throughout my studies in Chile and Australia. Even though I started my PhD in 2009, the roots of this thesis can be traced to 2004 when I was an undergraduate student at the School of Engineering of Universidad de Chile. Curious of what research in transport studies was like, I went to the library in search of master theses written by students of the transport engineering division. The one that caught my eye straightaway was Antonio Gschwender’s “Microeconomic Characterisation of Urban Public Transport Operations: a Critical Analysis”. This work was my first exposure to the theory of public transport economics and it captivated me. I would later develop my own master thesis on public transport, a process in which I greatly benefited from the mentoring and stimulating guidance of Cristián Cortés and Sergio Jara-Díaz. Then in 2006 I met David Hensher, who travelled to Santiago invited to a conference in our university. David kindly invited me to come to Sydney and visit him at the Institute of Transport and Logistics Studies, a trip that eventually prompted me to pursue my doctoral studies in Australia. I owe a debt of gratitude to David as my thesis supervisor and a mentor. Aside from all the knowledge I have acquired from him, David made me feel welcome from my very first day at the University of Sydney and has been extremely supportive of the ideas and endeavours I have undertaken along the way; his encouragement has been utterly important to further develop my work and research skills. I am also indebted to my associate supervisor John Rose, whose insightful comments have been influential in the final stages of my thesis work. Three years of work at the Institute have been a great pleasure, in which I have enjoyed the friendship of several colleagues and fellow doctoral candidates, especially Claudine, Patrick, Wu, Chinh, Asif and Lorenzo. Thanks for all the moments. I am very much indebted to Stephen Rowe, Managing Director of the Busways Group, Australia, who generously agreed to sponsor my work and granted me access to the Busways network in Blacktown, and to the company headquarters in Pymble, Sydney, where I could collect my own data to empirically estimate bus dwell and running times. My iv experience in Busways was invaluable to complement the theoretical work I was doing at the university with the empirical modelling of day-to-day bus operations. A special thanks to the staff of the scheduling department who were always happy to answer my many questions, especially Clayton Davidson, Andrew Glass, Nat Dechchavalit and Greg Blackley. I also need to thank Chile’s National Commission for Scientific and Technological Research (CONICYT), for providing me with the scholarship Beca de Doctorado por Gestión Propia for overseas PhD studies. Finally, none of this would have been possible without the perennial support and encouragement of my family. This thesis is dedicated to my parents Elba and Luis, my sister Jasna and my brother Luis Antonio, con todo mi amor. v Contents 1 INTRODUCTION........................................................................................................ 1 1.1 Research Topics and Questions ................................................................................ 2 1.1.1 Non-motorised modes ........................................................................................ 4 1.1.2 Fare collection system and boarding policy ....................................................... 5 1.1.3 Crowding ............................................................................................................. 6 1.1.4 Bus congestion .................................................................................................... 7 1.1.5 The provision of busways ................................................................................... 7 1.2 Research Approach ................................................................................................... 8 1.2.1 Fare collection system and boarding policy ....................................................... 9 1.2.2 Crowding ............................................................................................................. 9 1.2.3 Bus congestion .................................................................................................... 9 1.2.4 The provision of busways ................................................................................. 10 1.2.5 Total cost minimisation model ......................................................................... 10 1.2.6 Multimodal pricing and bus optimisation ........................................................ 11 1.3 Thesis Contributions ................................................................................................ 11 1.3.1 New elements and methodological refinements ............................................. 11 1.3.2 Theoretical and scientific relevance ................................................................. 14 1.3.3 Practical relevance ............................................................................................ 14 1.4 Research Scope ....................................................................................................... 16 1.5 Thesis Outline .......................................................................................................... 17 2 BACKGROUND: MICROECONOMIC MODELLING OF URBAN PUBLIC TRANSPORT OPERATION AND OPTIMAL PRICING .............................................................................. 20 2.1 Introduction ............................................................................................................. 20 2.2 Setting Public Transport Fares: First Best and Second Best Models ....................... 21 2.2.1 First best pricing ............................................................................................... 22 2.2.2 Second best pricing........................................................................................... 26 2.2.3 Issues that arise when subsidising public transport ......................................... 29 2.3 Results that Matter .................................................................................................