Public Policy Objectives and Urban Transit

Abstract

Transit is closely associated with public-sector involvement, including capital costs and significant subsidies of operating costs. The rationale for this involvement is justified on several grounds, including the presence of economies of scale in provision of transit service and the presence of external benefits associated with transit. In a recent study Parry and Small demonstrated that these two effects provide justification for existing subsidy levels for transit service in several cities. In the world of public transit, passenger ferry service in the New York City region is unusual: with the exception of the subsidized and publicly run Staten Island Ferry, the regional ferry system is run primarily with operating costs covered by farebox revenues. Can the arguments for public subsidies for transit extend to this system of private passenger ferries? Would economies of scale and external benefits justify an expanded and subsidized ferry system in the New York City region? These issues are explored by defining the public interest in the context of the system, discussing whether this public interest would justify a structural change in the way passenger ferries are funded in the region, and providing a timely case study, the East River Ferry service started in June 2011. This subsidized service, a ridership success, has capitalized on growing densities along the East River between Queens, Brooklyn, and Manhattan, New York.