Automated Fare Collection System & Urban Public Transportation: An Economic & Management Approach To Urban Transit Systems

By Clifford N. Opurum

With its unique features (presented in nine chapters grouped into five major parts), Automated Fare Collection System And Urban Public Transit: An Economic & Management Approach To Urban Transit Systems provides a wealth of resourceful information to everyone with interest in mass transit:
Part I: Public Transportation, Urban Economy And Automation in Fare Collection
Part II: Models of Transportation Pricing
Part III: Transportation Research Methods And Models
Part IV: Approaches And Trends in Urban Transit Ridership
Part V: Epilogue
In these parts of the book, Clifford N. Opurum reveals the impact of the automated fare collection system on mass transit and particularly, on the New York City rail rapid transit system. Various effective urban public transportation pricing techniques are presented. Transportation research methods and models including the alogit model and different approaches to transportation research analysis are featured. Alternative scenarios of cost-benefit analysis (CBA) are used extensively along with other feasibility studies strategies to determine the economic and social benefits of the automated fare collection system. The author concludes that as in the case of other industrial sectors, the financial health of the transit industry is very much dependent upon the level of transit patronage, and that automation in fare collection has further encouraged the later. Furthermore, he added that automated fare collection (AFC) is preferred over the mechanical system of fare collection and will make positive impact on both transit ridership and revenue, if efficiently operated. Finally, he stressed that society would be better off financially if the benefits of automation in transit fare collection are fully utilized, and that automation in fare collection has indeed influenced the travel pattern of most mass transit patrons.

• Language: English
• Publisher: Trafford Publishing
• Release date: Mar 6, 2012
• ISBN: 9781466913929

Clifford N. Opurum

Clifford N. Opurum, Ph.D., MCIT is an Assistant Professor of Economics and an Associate Professor of Management at The City University of New York and Pratt Institute, respectively. He is the author of “Globalization and Regional Integration: The ECOWAS Model”, published as Chapter 16 in “Globalization of Business: Theories and Strategies for Tomorrow’s Managers”, First Edition, Adonis & Abbey, London, October 2008. From 1991 to 1993, he authored the New York Metropolitan Area Regional Transportation Status Report as the Project Manager for the New York-New Jersey-Connecticut Tri-State Regional Transportation and Demographics Monitoring Project at the New York Metropolitan Transportation Council of the New York State Department of Transportation. He was a member of the New York City Transportation Task Force and Senior Citizens Transportation Advisory Committee (1988-91), which designed and implemented the New York City premier Para-transit Program (Access-A-Ride). He is also a Corporate Member of The Chartered Institute of Transport, Member, The British Institute of Management, Member, Institute of Transportation Engineers, Associate Member, Institute of Transportation Administration, and Member, Society for the Advancement of Management.

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Copyright 2012 Clifford N. Opurum.

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ISBN:

978-1-4669-1390-5

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ISBN:

978-1-4669-1392-9

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Library of Congress Control Number: 2012903178

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CONTENTS

Acknowledgements

Preface

About the Author

PART ONE:

Public Transportation, Urban Economy and

Automation in Fare Collection

Chapter 1

INTRODUCTION

General Overview of Public Transportation and Urban Economy

Historical Background

Demographic And Economic Trends of

The New York Metropolitan Region

New York City Rail Rapid Transit System:

Capacity, Management And Organization

New York City Subway Fare: Structure And Collection Method

Key Transit Performance Measures

Chronology of Key Events On The New York City

Automated Fare Collection Scheme

Organization of The Book

Chapter 2

AUTOMATION AND TRANSIT FARE

Introduction

Automation And Transit Fare Collection

Reasons Behind Automation In Fare Collection

Other Developments on Fare Cards

Advantages And Disadvantages of Automated Fare Collection

Prior Studies On The New York City Subway

PART TWO:

Models of Transportation Pricing

Chapter 3

PRINCIPLES OF PRICING AND RELATED MODELS

Introduction

Principles of Public Transportation Pricing

Basic Pricing Principles

Second-Best Pricing Rules

Peak Load Pricing

Other Alternative Pricing Practices

Transit Travel Demand Models

General Transit Travel Demand Function

Fare Elasticities And Elasticity-Based Transit Travel

Demand Models

Aggregate Methods

Disaggregate Methods

Choice Theories

Revealed Preference Data Model

Stated Preference Data Model

Summary

PART THREE:

Transportation Research Methods and Models

Chapter 4

RESEARCH METHODS

Introduction

Limitations and Key Assumptions in Research

Theoretical Framework And Research Methodology

Problem Statement And Research Questions

Research Data

The Research Process

Research Survey And Data Collection Process

Population And Sample Size

Research Models and Hypothesis Testing

Aggregate Model

Disaggregate Model

Research Hypothesis

Cost-Benefit Analysis

Overview And Definition

The Four Sequential Steps in Cost-Benefit Analysis

Evaluation Criteria, Formula And Cost-Benefit Elements

Summary

Chapter 5

RESEARCH SURVEY

Introduction

Conducting Pilot Survey

How And When To Conduct Main Research Survey

Profile of Survey Respondents Including

Their Socioeconomic Characteristics

Main Research Survey: Analysis of Findings

Ridership Frequency, Origin And Destination

Transit Users’ Preference of Fare Payment Alternative

System Performance

Research Survey Results Compared To Other Survey Results

Summary

PART FOUR:

Approaches and Trends in Urban Transit Ridership

Chapter 6

AGGREGATE APPROACH TO TRANSIT USAGE

Introduction

Aggregated New York City Transit Ridership Trends

Overall Transit Ridership Trend

Subway (Metro) Ridership Trend

Bus Transit Ridership Trend

Pre- Vs. Post-MetroCard Growth Rates

Empirical Results of The Aggregate Model

Combined Bus And Subway Constant Elasticity Model Results

Subway (Train)-Based Constant Elasticity Model Results

Bus System-Based Constant Elasticity Model Results

Variable or Proportional Elasticity Models

Model Results Summary

Model Estimates And Ridership Predictions

Test of Research Hypothesis

Transit Demand Forecasting

New York City Transit Ridership Forecasts:

2001, 2002 And 2003

Summary

Chapter 7

DISAGGREGATE APPROACH TO TRANSIT USAGE

Introduction

The Disaggregate Data

Model Development

Model Calibration And Results

Base Model And Segmented Models

Preferred (Merged) Model And Results

Summary

Chapter 8

INVESTMENT APPRAISAL

Introduction

Metropolitan Transportation Authority MTA)

Estimates of Costs And Benefits

Metropolitan Transportation Authority (MTA)

Costs Estimates

Metropolitan Transportation Authority (MTA)

Benefits Estimates

Estimates of Costs And Benefits

Cost Estimates

Estimates of Benefits

Assumptions Behind The Alternative Scenarios

Analysis Results

Basic Appraisal (Base Model)

Sensitivity Tests

Alternative Appraisal I

Alternative Appraisal II

Alternative Appraisal III

Alternative Appraisal IV

Unquantified Effects

Comparisons And Conclusions

PART FIVE:

Epilogue

Chapter 9

CONCLUSIONS AND RECOMMENDATIONS

Introduction

A Reflection On The Objectives And Findings

Conclusions

Summary of What We Have Learned

Research Findings By Segments

Aggregate Findings

Disaggregate Findings

Investment Appraisal Findings

Applications And Implications Of The Research Findings

Comments And Recommendations

Future Research Considerations

Appendices

Plates and Exhibits

Glossary

References

Dedicated to my beloved wife and children.

ACKNOWLEDGEMENTS

First and foremost, I am very grateful to the Almighty God, for His divine wisdom, knowledge, and understanding, and for the strength, courage and perseverance that brought me this far in my pursuit for and contribution towards knowledge.

My special thanks and gratitude to my beloved parents (may their souls rest in peace), and to my dear wife and children for unconditionally supporting my efforts, and for enduring my inadequate bonding with them for some years due to this effort. My gratitude also goes to my dear siblings for their strong moral support.

Indeed, I am very much indebted to my research supervisors at the Institute for Transport Studies, University of Leeds, Professor Emeritus Christopher A. Nash and Dr. Jeremy P. Toner without whom the production of this book would not have been accomplished. They were very much inspirational to my completing the research work from which this book was produced. I will always remember them in every step I take along my career path. I also thank my dear friend and associate, Dr. Jimoh E. Ikhide for his helpful suggestions and moral support in my research efforts.

My gratitude also goes to the staff of the Freedom of Information Law Office of the New York City Transit Authority who provided most of the empirical data on the New York City Subway and Buses, and the MetroCard. Without those data, my research efforts would have been frustrated. I am equally grateful to each and every New Yorker (over a thousand individuals) who participated in my research surveys conducted in 2001 and 2002, and to the staff of the New York City Straphangers Campaign for the useful information they provided to support this effort.

Finally, I must thank my former colleagues, friends and the staff at the Institute for Transport Studies (ITS), University of Leeds for their moral support and encouragement that helped in bringing my research work to fruition. Particularly, I am thankful to Dr. Paul Firmin for the useful materials he provided on the SPSS data analysis program, as well as Dr. Gerard Whelan and John Nellthorp, Senior Research Fellows (as of that time), for their helpful discussions on the ALOGIT version 4.0 program (used to develop the research models) and on cost-benefit analysis, respectively.

PREFACE

This book is the product of several years of doctoral research work at the Institute for Transport Studies, University of Leeds, England. The production of this first edition of Automated Fare Collection System & Public Transportation: An Economic & Management Approach to Urban Transit Systems was motivated by the desire to provide an insight into the operations of mass transit, and to present very relevant ideas required to make rational economic decisions in urban public transportation pricing and fare collection methods. These ideas, if cautiously and effectively implemented, will serve as a means to stimulating ridership, decongesting urban roadways and ultimately reducing air pollution.

The fiscal crisis of the 1970’s (the aftermath of a 1966 12-day strike by the City workers) resulted in nearly a decade of neglect of the New York City transit infrastructure. Particularly, the production of this edition was prompted by the uncomfortable experiences and observations noted on the adverse effects of the early 1990’s economic recession in the United States on transit ridership in New York City and in many other urban centers in the nation. These adverse conditions, which eventually led to the introduction of the Automated Fare Collection system in the New York City Transit system in early 1994, were quite disturbing. Automated Fare Collection system was originally introduced in the City’s transit system as a marketing strategy to stimulate the declining transit ridership.

The purpose of this edition is to present to university and college students, public transportation operators and urban transit users, as well as to society at large an evaluation of the impact of the automated fare collection (AFC) method on urban rail public transportation systems. It will be particularly resourceful to students who are majoring in one or more of the following fields: transportation, urban economics, managerial economics, urban community, urban planning, and urban policy. Its objectives are threefold:

• To identify the financial viability of the investment on the automated fare collection system;

• To show that ridership and operating revenue will improve if automated fare collection system is used as opposed to the manual system of fare collection; and

• To understand the over-all impact of the automated fare collection on urban public transportation systems.

In general, urban public transportation otherwise known as mass transit (or people’s mover) is the engine that drives the urban economy. It represents one of the observable elements (artifacts) of urban centers’ culture. Without mass transit, the urban economy will be paralyzed. Also, because it is designed to operate as a social service available and affordable to every member of society who needs it, mass transit systems often operate as government authorized monopolies subsidized with tax revenue. The initial fare paid for a ride on the New York City Subway at its commission in 1904 for instance was a nickel, that is, a single piece of five cents coin and which represented a large percentage of the people’s wages as of that period. In most cases, mass transit is designed and organized to suit the business activities schedules of the urban center. The history of the development of any urban center will be incomplete without a mention of the role of mass transit in the whole process. In deed the role of mass transit as a catalyst of industrial revolution and urbanization cannot be over emphasized.

In the case of the New York City rail rapid transit system, the present day New York City Subway, was originally a number of fragmented rail rapid transit lines operated by different private for-profit rail transit operators. As a way of retaining some pieces of the City’s history, some of the names of these private transit operators, which date as far back as 1827, were later used to name the different train lines of the New York City Subway as seen today. However, it was not until 1953 that the present operator of the New York City Subway, the New York City Transit Authority (now known as the MTA New York City Transit) was created under the New York State Legislature as a public corporation to manage and operate all city-owned bus, subway and trolley routes. Also, because New York City operates as a twenty-four hour, seven days a week city (the so called 24/7 operating schedule), the New York City Subway was also designed and organized to operate in the same manner.

Automation in transit fare collection is a fairly new idea in urban transit systems compared to the age of the transit systems and to New Yorkers in particular. However, urbanites are quickly adopting and embracing this special piece of new technology. Our research study on automated fare collection and rail rapid transit the case of New York (1998-2005), found that automated fare collection (AFC) system is preferred over the traditional mechanical system of fare collection and will make positive impact on both transit ridership and revenue, if efficiently operated. Over 90% of New Yorkers who participated in our research survey approved the AFC system. Our research also found that the society would be better off financially (by at least $2.5 billion over a 30-year period) if the benefits of automation in transit fare collection are fully utilized. In contrast to the MTA’s view, we found that the MetroCard is not commercially viable. Automation in fare collection has in deed influenced the travel pattern of most New Yorkers, as the study revealed. In particular, the free bus/train transfer and fare discount components of the AFC have encouraged more ridership on the Subway and buses, evidenced by the upward shifting of the demand curve by 10.3 percent of the entire transit ridership. A free transfer was valued at $0.77 by persons who are both full-time employed and student, with an average for all transit user groups estimated at $0.22. The most influencing factor in making choice of transit ticket is trip frequency.

Fare elasticity was estimated at –0.25 for the entire transit system, at –0.2 for the Subway, and at –0.35 for the bus. These fare elasticities are in accord with the traditionally used values in the industry, and with those from other studies in similar urban locations. However, the study also found that a fare increase would result in a reduction in the transit user benefits, thereby discouraging transit patronage. The need to educate the public to more efficiently use the new fare collection system still remains. These findings will serve as useful information to users and providers of transit service including planners and scholars.

Suitable investment appraisal technique (cost-benefit analysis, using the net present value, NPV approach) is used in conjunction with the results of elasticity-based transit demand models and ticket choice (logit) models in determining the profitability of the AFC system. Both management and economic approaches are adopted in the evaluation process. Hypothesis tests were performed to determine the degree of relationship, if any, between subway performance and AFC system. Comparisons of the subway operating statistics before and after the introduction of the AFC system are also a component of this edition. Scheduled site visits were made at a selected number of New York City Subway stations at different days of the week to observe subway riders’ behaviors and attitudes as they pay their fares with the automated fare card, MetroCard. Some elements of consumer behavior peculiar to urban travelers are also identified in this text. The primary data for the disaggregate model were collected using appropriately structured survey questionnaires targeted to both existing and potential transit riders. Secondary and other empirical data were also obtained primarily from the operating statistics of the New York City Transit and from other known sources.

To enhance readability and cohesiveness, and for the convenience of the reader, this book has been carefully organized in five major parts. In Part One, public transportation, urban economy and automation in fare collection are presented in order to give a historical background and overview, and to show the relationship between mass transit and the urban economy. A methodological framework, which shows a step-by-step process followed to accomplish the tasks of the referenced research work, is also presented in Part One. The models of transportation pricing are presented in Part Two. Part Three deals with transportation research methods and models, while in Part Four approaches and trends in mass transit ridership are presented. The last section, Part Five, is the epilogue and it presents a summary and conclusions of this first edition. Expert recommendations on efficient, cost-effective strategies to mass transit operation and management are also provided.

Clifford N. Opurum, Ph.D., MCIT

ABOUT THE AUTHOR

Clifford N. Opurum, Ph.D., MCIT is currently an Assistant Professor of Economics at the City University of New York (CUNY), and a Visiting Associate Professor of Management at Pratt Institute in New York City, where he has been teaching Principles of Management in the University’s School of Architecture since 2008. Since joining the City University of New York Faculty in 2006, Dr. Opurum has been teaching economics and business management courses at various campuses of the University. He has also taught at two campuses of the State University of New York (SUNY New Paltz and F.I.T. SUNY). In the 2008/9 Academic Year, Dr. Opurum taught various micro and macroeconomics courses (including Economics of Globalization) as a full-time Visiting Assistant Professor of Economics at the State University of New York at New Paltz, and in 2009, at the Fashion Institute of Technology (F.I.T.) as an Adjunct Faculty (Economics). He was also an Adjunct Instructor of Business Administration and Management at Briarcliffe College in Bethpage, New York, Adjunct Professor of Management at Berkeley College in New York City, and a visiting faculty at the College of New Rochelle, New York where he has taught a course in Urban Community.

Dr. Opurum holds a Diploma (B.A. Honors Degree) in Transport Studies from University of London, England (1982), a Master of Science Degree in Transportation Management from State University of New York Maritime College (1985), a Master of Arts Degree in Economics from Fordham University, New York (1987), a Master of Science Degree in Transportation Planning and Engineering from the Polytechnic University, New York (1993), and a Ph.D. from the University of Leeds, England (2005). Dr. Opurum is also a Corporate Member of The Chartered Institute of Transport (MCIT), an Associate Member of the Institute of Transportation Administration, Member of the Institute of Transportation Engineers, and a Member of the Society for the Advancement of Management (SAM).

His research interest is in the areas of international/global business, strategic management, economics, sea, land and air transportation management, planning and engineering, and urban policy. He has attended some international business management and other academic conferences (including one organized by the Federal Reserve Bank of New York at its corporate offices in New York City), and presented and reviewed some research papers at some of the conferences he attended. His work has appeared in proceedings of both local and international business conferences. His recent publications include Globalization and Regional Integration: The ECOWAS Model, which was published as Chapter 16 in a textbook titled Globalization of Business: Theories and Strategies for Tomorrow’s Managers, First Edition, and published by Adonis & Abbey Publishers Ltd, London, October 2008.

Dr. Opurum’s unpublished peer-reviewed research papers include A Review of the Relationship Between Public transportation Pricing and Travel Demand: An Exploratory Study, which was presented at the 2006 International Business Conference in Orlando, Florida held by the Society for the Advancement of Management. Some of his work-in-progress research papers include Transportation Alternative Energy and Social Entrepreneurship, and Entrepreneurship and Small Business Development. In 2008, he presented a research paper titled Regional Economic Integration at the First World Diaspora Conference sponsored by the First World Chapter of the State University of New York at New Paltz Alumni Association and the Departments of Black Studies and Foreign Languages, and the Latin-American Studies. Dr. Opurum was also a Special Guest Speaker at the State University of New York at New Paltz Students In Free Enterprise (SIFE) event held on November 7, 2008, where he delivered a speech on Entrepreneurship and Small Business Development.

Prior to his teaching appointments, Dr. Opurum held several management positions in both the public and private sectors within the New York Metropolitan Region most of which are in the transportation industry. From 1991 to 1993, he authored the New York Metropolitan Area Regional Transportation Status Report as the Project Manager for the New York-New Jersey-Connecticut Tri-State Regional Transportation and Demographics Monitoring Project at the New York Metropolitan Transportation Council of the New York State Department of Transportation. He was a member of the New York City Transportation Task Force and Senior Citizens Transportation Advisory Committee (1988-91), which designed and implemented the New York City premier Para-transit Program otherwise known as the Access-A-Ride, during the administrations of Mayors Edward I. Koch and David N. Dinkins. During that same period, he worked for the New York City Department for The Aging (DFTA) as a Community Coordinator (Transportation and Social Services) and subsequently, as a Program Officer (Contract Manager).

In 1994, Dr. Opurum worked with the consulting firm of Louis Berger & Associates, Incorporated as a Senior Transportation Planner at the company’s East Orange, New Jersey corporate offices, where he supervised field assignments on public transportation and highway improvement projects under contracts with Government agencies.

Dr. Opurum also was a Transportation Planner from 1997 to 2004 with the Metro-North Railroad of the New York Metropolitan Transportation Authority, where he was the Project Manager (Planner) for Ridership Analysis and Reports.

Dr. Opurum’s extra-curriculum activities include doing God’s work as an Ordained Deacon and a Chorister, practicing real estate as a Real Estate Agent, doing notary services as a Commissioned Notary Public and spending quality time with his family as a father and a husband. He is married and lives in New York with his lovely wife and children.

PART ONE:

PUBLIC TRANSPORTATION, URBAN ECONOMY AND

AUTOMATION IN FARE COLLECTION

CHAPTER 1

INTRODUCTION

General Overview of Public Transportation and Urban Economy

In general, urban public transportation otherwise known as mass transit (or people’s mover) is the engine that drives the urban economy. It represents one of the observable elements (artifacts) of urban centers’ cultures and has developed from its infant stage of horse-drawn carriages or the horse-car era (1855-1890) to present day jet speed rail systems. Without mass transit, the urban economy will be literarily paralyzed. Also, because it is designed to operate as a social service available and affordable to every member of society who needs it, mass transit systems often operate as government authorized monopolies subsidized with tax revenue. The initial fare paid for a ride on the New York City Subway at its commission in 1904 for instance was a nickel, that is, a single piece of five cents coin and which represented a large percentage of the people’s wages as of that period. In most cases, mass transit is designed and organized to suit the business activities schedules of the urban center. The history of the development of any urban center will be incomplete without a mention of the role of mass transit in the whole process. In deed the role of mass transit as a catalyst of industrial revolution and urbanization cannot be over emphasized.

In the case of the New York City rail rapid transit system, the present day New York City Subway was originally a number of fragmented rail rapid transit lines operated by different private for-profit rail transit operators. As a way of retaining some pieces of the City’s history, some of the names of these private transit operators, which date as far back as 1827, were later used to name the different train lines of the New York City Subway as seen today. However, it was not until 1953 that the present operator of the New York City Subway, the New York City Transit Authority (now known as the MTA New York City Transit) was created under the New York State Legislature as a public corporation to manage and operate all city-owned bus, subway and trolley routes. Also, because New York City operates as a twenty-four hour, seven days a week city (the so called 24/7 operating schedule), the New York City Subway was also designed and organized to operate in the same manner.

Automation in transit fare collection is a fairly new idea in urban transit systems compared to the age of the transit systems and to New Yorkers in particular. However, urbanites are quickly adopting and embracing this special piece of new technology. Our research study on automated fare collection and rail rapid transit the case of New York (1998-2005), found that automated fare collection (AFC) system is preferred over the traditional mechanical system of fare collection and will make positive impact on both transit ridership and revenue, if efficiently operated. Over 90% of New Yorkers who participated in our research survey approved the AFC system. Our research also found that the society would be better off financially (by at least $2.5 billion over a 30-year period) if the benefits of automation in transit fare collection are fully utilized. In contrast to the MTA’s view, we found that the MetroCard is not commercially viable. Automation in fare collection has in deed influenced the travel pattern of most New Yorkers, as the study revealed. In particular, the free bus/train transfer and fare discount components of the AFC have encouraged more ridership on the Subway and buses, evidenced by the upward shifting of the demand curve by 10.3 percent of the entire transit ridership. A free transfer was valued at $0.77 by persons who are both full-time employed and student, with an average for all transit user groups estimated at $0.22. The most influencing factor in making choice of transit ticket is trip frequency.

Fare elasticity was estimated at -0.25 for the entire transit system, at -0.2 for the Subway, and at -0.35 for the bus. These fare elasticities are in accord with the traditionally used values in the industry, and with those from other studies in similar urban locations. However, the study also found that a fare increase would result in a reduction in the transit user benefits, thereby discouraging transit patronage. The need to educate the public to more efficiently use the new fare collection system still remains. These findings will serve as useful information to users and providers of transit service including planners and scholars.

Suitable investment appraisal technique (cost-benefit analysis, using the net present value, NPV approach) is used in conjunction with the results of elasticity-based transit demand models and ticket choice (logit) models in determining the profitability of the AFC system. Both management and economic approaches are adopted in the evaluation process. Hypothesis tests were performed to determine the degree of relationship, if any, between subway performance and AFC system. Comparisons of the subway operating statistics before and after the introduction of the AFC system are also a component of this