Do price reductions attract customers in urban public transport? A synthetic control approach

TL;DR

This study uses a novel synthetic control method to quantify the demand increase in Geneva's public transport following fare reductions, accounting for supply changes and providing the first causal estimate of such effects driven by direct democracy.

Contribution

It introduces a new application of the synthetic control method to assess fare reduction impacts in urban public transport and proposes an aggregate metric to isolate demand effects from supply changes.

Findings

Demand increases by over 10.6% over five years due to fare reductions.

A lower bound estimate shows at least a 3.7% demand increase.

First causal estimate of fare reduction effects in urban public transport via direct democracy.

Abstract

In this paper, we assess the demand effects of lower public transport fares in Geneva, an urban area in Switzerland. Considering a unique sample based on transport companies' annual reports, we find that, when reducing the costs of annual season tickets, day tickets and hourly tickets (by up to 29%, 6% and 20%, respectively), demand increases by, on average, over five years, about 10.6%. To the best of our knowledge, we are the first to show how the synthetic control method (Abadie and Gardeazabal, 2003, Abadie, Diamond, and Hainmueller, 2010) can be used to assess such (for policy-makers) important price reduction effects in urban public transport. Furthermore, we propose an aggregate metric that inherits changes in public transport supply (e.g., frequency increases) to assess these demand effects, namely passenger trips per vehicle kilometre. This metric helps us to isolate the impact of price reductions by ensuring that companies' frequency increases do not affect estimators of interest. In addition, we show how to investigate the robustness of results in similar settings. Using a recent statistical method and a different study design, i.e., not blocking off supply changes as an alternate explanation of the effect, leads us to a lower bound of the effect, amounting to an increase of 3.7%. Finally, as far as we know, it is the first causal estimate of price reduction on urban public transport initiated by direct democracy.