Public-Transportation Credits: The potential of three-part tariffs in public transportation

Abstract

In December 2023, public-transportation providers in Switzerland introduced Public-Transportation Credits (PTCs). PTCs are credits (or “allowances”) that are greater in amount than their price and can be used to purchase any type of public-transportation tickets within a year. With the initial fixed payment, the subsequent use of the allowance and the eventual return to the standard fare, PTCs represent three-part tariff models. We explore the potential of PTCs to target particularly elastic segments of the demand curve, simultaneously allowing for increased consumption and higher revenue. To assess the revenue impact of the PTC empirically, we analyze a pilot study conducted by the Swiss public-transportation providers. In a randomized field experiment with 200,000 PTC invitees and 911 actual PTC buyers, we use the dispach of invitations as an instrumental variable. While observing substantial revenue increases, this result is insignificant due to the weak relationship between invitees and buyers. Therefore, we complement our analysis with a selection-on-observable approach, utilizing machine-learning techniques to match PTC buyers to customers in the control group. This way, we reveal a highly significant treatment effect, indicating a revenue enhancement of CHF179.7 per PTC (approximately USD200). Leveraging our comprehensive dataset and insights from a non-buyer survey, we predict a demand of around 200,000 units for the market-launch version of the PTC.