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CURB RIGHTS CURB RIGHTS A Foundation for Free Enterprise in A Foundation for Free Enterprise in Urban Transit Urban Transit By: By: Daniel B. Klein Daniel B. Klein Associate Professor of Economics at Santa Clara Associate Professor of Economics at Santa Clara University University Adrian T. Moore Adrian T. Moore Policy Analyst at the Reason Foundation, Los Policy Analyst at the Reason Foundation, Los Angeles Angeles Binyam Reja Binyam Reja Graduate Student at University of California, Graduate Student at University of California, Irvine. Irvine. A Presentation By: A Presentation By: Kristi Heitt Kristi Heitt Leland Levin Leland Levin
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CURB RIGHTS. A Foundation for Free Enterprise in Urban Transit By: Daniel B. Klein Associate Professor of Economics at Santa Clara University Adrian T. Moore Policy Analyst at the Reason Foundation, Los Angeles Binyam Reja Graduate Student at University of California, Irvine. - PowerPoint PPT Presentation
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Page 1: CURB RIGHTS

CURB RIGHTSCURB RIGHTSA Foundation for Free Enterprise in Urban TransitA Foundation for Free Enterprise in Urban Transit

By:By:

Daniel B. KleinDaniel B. KleinAssociate Professor of Economics at Santa Clara UniversityAssociate Professor of Economics at Santa Clara University

Adrian T. MooreAdrian T. Moore Policy Analyst at the Reason Foundation, Los AngelesPolicy Analyst at the Reason Foundation, Los Angeles

Binyam RejaBinyam RejaGraduate Student at University of California, Irvine.Graduate Student at University of California, Irvine.

A Presentation By:A Presentation By:Kristi HeittKristi Heitt

Leland LevinLeland LevinCara PriceCara Price

Page 2: CURB RIGHTS

Curb Rights Road MapCurb Rights Road Map

Section One:Section One:Diagnosing Traditional TransitDiagnosing Traditional Transit

Section Two:Section Two:Transit Markets Improperly Regulated and Transit Markets Improperly Regulated and

Improperly DeregulatedImproperly Deregulated

Section Three:Section Three:Property Rights and Route Based Transit MarketsProperty Rights and Route Based Transit Markets

Policy Recommendations and ConclusionsPolicy Recommendations and Conclusions

Page 3: CURB RIGHTS

Limiting Cases for the Limiting Cases for the Continuum of Social Continuum of Social

GovernanceGovernanceRegulation Regulation

or or

government ownershipgovernment ownershipProperty RightsProperty Rights

Regulation tells you Regulation tells you what you may or may what you may or may not do with your not do with your propertyproperty

Property rights tell others Property rights tell others what they may and may not what they may and may not do with your propertydo with your property

Order created by Order created by central direction, central direction, regulation, or regulation, or government enterprisegovernment enterprise

Order emerges from Order emerges from decentralized interaction decentralized interaction within property rights within property rights frameworkframework

Fig. 1-1

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Goal of Curb RightsGoal of Curb Rights

• Curb Rights calls for the reform of Curb Rights calls for the reform of public transit to take shape within public transit to take shape within the order of free enterprise that is the order of free enterprise that is framed by a system of property framed by a system of property rights.rights.

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Example of Exclusive Curbs Example of Exclusive Curbs and Commonsand Commons

Street

Commons

Commons

Commons

Commons

Exclusive Bus Zone

Exclusive Bus Zone

Exclusive Bus Zone

Exclusive Bus Zone

Fig. 10-1

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Goals of the AuthorsGoals of the Authors

• To reveal how the forms and effectiveness To reveal how the forms and effectiveness of transit service depend on the character of transit service depend on the character of property rights as they exist in transit of property rights as they exist in transit markets.markets.

• To use the knowledge gained about the To use the knowledge gained about the status of property rights in existing transit status of property rights in existing transit markets to devise new forms of markets to devise new forms of governance for transit.governance for transit.

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Section OneSection One

Diagnosing Traditional TransitDiagnosing Traditional Transit

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Understanding Traditional Understanding Traditional TransitTransit

• To understand traditional transit, To understand traditional transit, three areas must be examined:three areas must be examined:

• The Triumph of the AutomobileThe Triumph of the Automobile

• The Fizzle of Traditional TransitThe Fizzle of Traditional Transit

• Why Traditional Transit FizzlesWhy Traditional Transit Fizzles

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The Triumph of the The Triumph of the AutomobileAutomobile

• ““Edgification”: the development of Edgification”: the development of areas that lack definite urban form areas that lack definite urban form yet nonetheless function as cities. yet nonetheless function as cities. This is caused in American cities by:This is caused in American cities by:• ProsperityProsperity• The rise of the private automobileThe rise of the private automobile

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Automobiles Satisfy All of Automobiles Satisfy All of Travelers’ ValuesTravelers’ Values

• In order to compete with automobiles, In order to compete with automobiles, transit must emulate their transit must emulate their characteristics.characteristics.

• Therefore:Therefore:• ““[A] property rights proposal would favor [A] property rights proposal would favor

transit services more like the private transit services more like the private automobile, blurring the distinction automobile, blurring the distinction between the private car and mass between the private car and mass transportation.”transportation.”

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Benefits and Problems of Benefits and Problems of AutomobilesAutomobiles

BenefitsBenefits• Superior flexibilitySuperior flexibility• PrivacyPrivacy• Accommodation of Accommodation of

diverse lifestylesdiverse lifestyles• SpeedSpeed• AccessAccess• AffordabilityAffordability

ProblemsProblems• CongestionCongestion• Air pollutionAir pollution

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Characteristics of the Travel Characteristics of the Travel Experience That Travelers Value:Experience That Travelers Value:

• Short trip timesShort trip times• Avoidance of Avoidance of

transfers and transfers and waiting timewaiting time

• Door-to-door Door-to-door serviceservice

• ReliabilityReliability• ComfortComfort

• Seat availabilitySeat availability• Storage spaceStorage space• SecuritySecurity• FlexibilityFlexibility• PrivacyPrivacy• AutonomyAutonomy

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The Fizzle of Traditional The Fizzle of Traditional TransitTransit

• History of the Transit Fizzle:History of the Transit Fizzle:• Decline begins in the early 20Decline begins in the early 20thth century. century.

• During WWII, ridership surged, and government During WWII, ridership surged, and government regulations imposed restrictions.regulations imposed restrictions.

• In 1950s transportation shifted from streetcars to In 1950s transportation shifted from streetcars to motorbuses.motorbuses.

• In the 1950s and 1960s household incomes increased In the 1950s and 1960s household incomes increased and people bought cars, and moved to the suburbs.and people bought cars, and moved to the suburbs.

• Urban Mass Transportation Act of 1964 provided funding Urban Mass Transportation Act of 1964 provided funding for the purchase of local mass transit systems.for the purchase of local mass transit systems.

• Market trend since 1960s has been against mass Transit.Market trend since 1960s has been against mass Transit.

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Public Transit Operating Costs Public Transit Operating Costs and Passenger Trips, 1960-and Passenger Trips, 1960-

19921992

Fig. 3-1

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Why Traditional Transit Why Traditional Transit FizzlesFizzles

• Two bodies of thought attempt to explain Two bodies of thought attempt to explain the fizzle of traditional transit:the fizzle of traditional transit:

• Hayekian view:Hayekian view:• Emphasizes the importance of understanding local Emphasizes the importance of understanding local

conditions.conditions.• Assumes public officials are scrupulous and diligent.Assumes public officials are scrupulous and diligent.

• Public Choice:Public Choice:• Self interest and incentives influence the actions of Self interest and incentives influence the actions of

government.government.• Assumes public officials are not especially Assumes public officials are not especially

scrupulous.scrupulous.

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Hayekian Critique of Traditional Hayekian Critique of Traditional TransitTransit

• Centralized authority makes it easier to Centralized authority makes it easier to integrate service, coordinate parts, and integrate service, coordinate parts, and ensure reliable schedules.ensure reliable schedules.

• Economic terrain consists of particularistic Economic terrain consists of particularistic conditions that are constantly changing.conditions that are constantly changing.

• Hayekian theory warns that unified Hayekian theory warns that unified planning will reduce the innovation that planning will reduce the innovation that comes with specific local knowledge.comes with specific local knowledge.

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Compared to the Free Market, Compared to the Free Market, Public Agencies Have Three Public Agencies Have Three

Limitations.Limitations.

• Regulation or subsidization of the public Regulation or subsidization of the public system serves to deter competitors.system serves to deter competitors.

• The public agency has little knowledge The public agency has little knowledge of local markets.of local markets.

• The public agency is less responsive.The public agency is less responsive.

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Compared to the Public Agencies, Compared to the Public Agencies, the Free Market Has Three the Free Market Has Three

Advantages.Advantages.

• The free market makes use of existing The free market makes use of existing dispersed knowledge of local conditions.dispersed knowledge of local conditions.

• The free market permits flexibility in The free market permits flexibility in response to perceived changes in local response to perceived changes in local conditions.conditions.

• The free market fuels the discovery of The free market fuels the discovery of opportunities that go unnoticed by public opportunities that go unnoticed by public agencies.agencies.

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Public Choice Critique of Public Choice Critique of Traditional Urban TransitTraditional Urban Transit

• Corrective government action may show Corrective government action may show imperfections more severe than those of imperfections more severe than those of free enterprise.free enterprise.

• Lurking behind official goals of serving the Lurking behind official goals of serving the public are personal goals of public public are personal goals of public servants.servants.

• The official goals of a transit agency are The official goals of a transit agency are multiple, confused, and conflicted.multiple, confused, and conflicted.

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““The intervention dynamic [of The intervention dynamic [of government in transit] leads to the government in transit] leads to the decline of the industry, public decline of the industry, public takeover, further decline, and finally takeover, further decline, and finally re-privatization, bringing the situation re-privatization, bringing the situation back to the starting point.”back to the starting point.”

In SummaryIn Summary

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Section TwoSection Two

Transit Markets Improperly Regulated Transit Markets Improperly Regulated and Improperly Deregulatedand Improperly Deregulated

OROR

What Not to do When Designing an What Not to do When Designing an Urban Transit SystemUrban Transit System

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Transit Free-MarketsTransit Free-Markets

• All of the systems which we will discuss had All of the systems which we will discuss had some measure of success, however they all some measure of success, however they all also had flaws.also had flaws.

• In order to ensure the best possible service In order to ensure the best possible service and the lowest price we must ensure and the lowest price we must ensure competition, this requires an approach quite competition, this requires an approach quite different from those discussed previously.different from those discussed previously.

A Property Rights Based System Is A Property Rights Based System Is NeededNeeded

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Jitneys and InterlopingJitneys and Interloping

• Jitneys: small unscheduled vehicles plying Jitneys: small unscheduled vehicles plying a route.a route.

• Four different Jitney experiences will be Four different Jitney experiences will be explored:explored:• Jitneys in the United States: 1914-1916Jitneys in the United States: 1914-1916• Jitneys in Less Developed CountriesJitneys in Less Developed Countries• Illegal Jitneys in the United StatesIllegal Jitneys in the United States• Legal Jitneys in the United StatesLegal Jitneys in the United States

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Jitneys in the United States: 1914-Jitneys in the United States: 1914-19161916

• In 1914, the prevalent form of urban transit was the In 1914, the prevalent form of urban transit was the tracked streetcar.tracked streetcar.

• Private automobile owners would drive the routes of Private automobile owners would drive the routes of the street cars, and pick up passengers for a nickel.the street cars, and pick up passengers for a nickel.

• Jitneys adversely affected the revenue of streetcar Jitneys adversely affected the revenue of streetcar companies, LA trolley companies lost $3 million a companies, LA trolley companies lost $3 million a year.year.• The jitneys were making more than that however, and The jitneys were making more than that however, and

serving customers that the trolleys didn’t.serving customers that the trolleys didn’t.

• The government, at the behest of the trolley lobby, The government, at the behest of the trolley lobby, cracked down on these jitneys, and they faded from cracked down on these jitneys, and they faded from the scene.the scene.

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Jitneys in Less Developed Jitneys in Less Developed CountriesCountries

• In LDCs, especially those in Latin America, In LDCs, especially those in Latin America, jitneys are very common.jitneys are very common.

• These jitneys are usually in competition These jitneys are usually in competition with subsidized bus services.with subsidized bus services.

• Jitneys are sometimes granted official Jitneys are sometimes granted official recognition and sometimes not, but in recognition and sometimes not, but in both cases they ignore official rules.both cases they ignore official rules.

• Jitney operators tend to form cartels and Jitney operators tend to form cartels and exclude competition, thus they have the exclude competition, thus they have the same problems as government sponsored same problems as government sponsored transit monopolies.transit monopolies.

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Illegal Jitneys in the United Illegal Jitneys in the United StatesStates

• Illegal jitneying in the US never persists on a Illegal jitneying in the US never persists on a small scale, it either persists as a significant small scale, it either persists as a significant force or is wiped out by law enforcement.force or is wiped out by law enforcement.

• Illegal jitneying in the US comes about as a Illegal jitneying in the US comes about as a result of a shock to the system, normally a result of a shock to the system, normally a strike (in the case of NYC) or a sudden strike (in the case of NYC) or a sudden loophole in the law (as in Florida).loophole in the law (as in Florida).

• While these two experiences in the US are While these two experiences in the US are unique, they go to prove that unsubsidized unique, they go to prove that unsubsidized transit in the US can succeed and prosper.transit in the US can succeed and prosper.

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Legal Jitneys in the United Legal Jitneys in the United StatesStates

• There are a few place in the US (Atlantic There are a few place in the US (Atlantic Cit, San Diego, Los Angeles, San Cit, San Diego, Los Angeles, San Francisco) where jitneying is legal.Francisco) where jitneying is legal.

• Legal jitneys tend to fail for a number of Legal jitneys tend to fail for a number of reasons:reasons:• They tend to interfere with scheduled service, They tend to interfere with scheduled service,

thus provoking crack downs.thus provoking crack downs.• They cannot compete with the subsidized fares They cannot compete with the subsidized fares

of city busses.of city busses.• They cannot survive in thin markets.They cannot survive in thin markets.

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Edge Transit Services in the Edge Transit Services in the United StatesUnited States

• These are transit services that operate on the These are transit services that operate on the ‘edge’ of route based services.‘edge’ of route based services.

• There are four major types of edge transit There are four major types of edge transit service:service:• Illegal (“Gypsy”) TaxicabsIllegal (“Gypsy”) Taxicabs• Taxis (and Deregulation of Taxis)Taxis (and Deregulation of Taxis)• Commuter Transit ServicesCommuter Transit Services• Non-commuter Door-to-Door ServicesNon-commuter Door-to-Door Services

• All of these types of transit go to show that All of these types of transit go to show that private transportation can prosper and do well, private transportation can prosper and do well, however as all these systems lacked protections however as all these systems lacked protections for property rights, they were not perfect.for property rights, they were not perfect.

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Bus Privatization and Bus Privatization and Deregulation in BritainDeregulation in Britain

• The 1985 Transportation Act deregulated all The 1985 Transportation Act deregulated all bus services in Britain, except in London, bus services in Britain, except in London, making all public lines private companies making all public lines private companies and allowed competition to be introduced in and allowed competition to be introduced in the deregulated markets.the deregulated markets.

• This process resulted in imperfect This process resulted in imperfect deregulation and a lack of competition deregulation and a lack of competition because the reforms were enacted without because the reforms were enacted without a guarantee of property rights.a guarantee of property rights.

• If reform is to work, a system must be If reform is to work, a system must be enacted which is signifigantly different from enacted which is signifigantly different from Britain’s.Britain’s.

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Contracting Out Bus Service Contracting Out Bus Service in the United Statesin the United States

• In the 1980s the Reagan administration required In the 1980s the Reagan administration required transit agencies to consider whether services transit agencies to consider whether services could be provided by the private sector.could be provided by the private sector.

• Most of the services which are contracted out are Most of the services which are contracted out are dial-a-ride and para-transit services, not regular dial-a-ride and para-transit services, not regular bus service.bus service.

• This represents a form of competition, where This represents a form of competition, where companies are forced to compete for a contract, companies are forced to compete for a contract, but the inherent advantages that are held by the but the inherent advantages that are held by the incumbent contractor function to prevent any incumbent contractor function to prevent any great deal of innovation after the first few years.great deal of innovation after the first few years.

• While contracting out may be good for a while, it While contracting out may be good for a while, it is not as good as true privatization.is not as good as true privatization.

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Transit Markets ConclusionTransit Markets Conclusion

• All of the systems which we will discuss had All of the systems which we will discuss had some measure of success, however they all some measure of success, however they all also had flaws.also had flaws.

• In order to ensure the best possible service In order to ensure the best possible service and the lowest price we must ensure and the lowest price we must ensure competition, this requires an approach quite competition, this requires an approach quite different from those discussed previously.different from those discussed previously.

A Property Rights Based System Is A Property Rights Based System Is NeededNeeded

Page 32: CURB RIGHTS

Section ThreeSection Three

Property Rights and Route Based TransitProperty Rights and Route Based Transit

MarketsMarkets

AndAnd

Policy Recommendations and Policy Recommendations and ConclusionsConclusions

Page 33: CURB RIGHTS

Transit Market TheoryTransit Market Theory

• Two core premises:Two core premises:1.1. Jitneys have market advantage over Jitneys have market advantage over

scheduled servicescheduled service2.2. There are route-specific sunk costs in There are route-specific sunk costs in

scheduled servicescheduled service

• Transit Market theory considers market Transit Market theory considers market conditions for 2 variables:conditions for 2 variables:

1.1. Status of curb rights along the routeStatus of curb rights along the route2.2. Volume of passenger demand on the routeVolume of passenger demand on the route

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Jitneys vs. Scheduled Jitneys vs. Scheduled ServiceService

• JitneysJitneys• The Market Advantages.The Market Advantages.• The Market Disadvantages.The Market Disadvantages.• Free wheeling jitneys: Market Parasitism.Free wheeling jitneys: Market Parasitism.

• Scheduled ServiceScheduled Service• If jitneys are free to interlope, they will dissolve If jitneys are free to interlope, they will dissolve

any scheduled service.any scheduled service.• Without scheduled service, there may be fewer Without scheduled service, there may be fewer

riders congregating at the curb and thus there riders congregating at the curb and thus there will be fewer jitneys.will be fewer jitneys.

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The Absence of Curb RightsThe Absence of Curb Rights

• The Thick Market:The Thick Market:• Can Jitneys be sustained in the absence of Can Jitneys be sustained in the absence of

scheduled service?scheduled service?• (YES)(YES) The Jitney Cascade Is Sustained. The Jitney Cascade Is Sustained.

• The Thin Market:The Thin Market:• The Dissolving Anchor.The Dissolving Anchor.• Setting up scheduled bus service entails sunk Setting up scheduled bus service entails sunk

costs.costs.• ““Tragedy of the commons.”Tragedy of the commons.”

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Transit policy operates at 2 Transit policy operates at 2 extremes:extremes:

• Exclusive monopolies (for bus service)Exclusive monopolies (for bus service)• No curb rights protection (allows jitneys)No curb rights protection (allows jitneys)

• SolutionSolution• Property Rights Proposal for Transit MarketsProperty Rights Proposal for Transit Markets

• A policy with:A policy with:• A policy with a limited degree of exclusive rights (to A policy with a limited degree of exclusive rights (to

prevent dissolving anchor)prevent dissolving anchor)• The permission of freewheeling competition on the routeThe permission of freewheeling competition on the route

Page 37: CURB RIGHTS

The General Idea of The General Idea of Curb Curb RightsRights

• System that guarantees some exclusivity System that guarantees some exclusivity and allows jitneysand allows jitneys

• Must be adapted to particularistic Must be adapted to particularistic conditionsconditions

• 2 classifications of curbs:2 classifications of curbs:1.1. Exclusive (bus zones) Exclusive (bus zones)

2.2. CommonsCommons

Page 38: CURB RIGHTS

Example of Exclusive Curbs Example of Exclusive Curbs and Commonsand Commons

Street

Commons

Commons

Commons

Commons

Exclusive Bus Zone

Exclusive Bus Zone

Exclusive Bus Zone

Exclusive Bus Zone

Fig. 10-1

Page 39: CURB RIGHTS

Off-peakPeak

B

B

B

B

3:30 p.m.

A

B

A

B

3:00 p.m.

B

Commons

B

Commons

8:15 a.m.

1

2

3

4

A

Commons

A

Commons

8:00 a.m.

Temporal Demarcation of Curb Temporal Demarcation of Curb RightsRights

Property Rights Assignments to Curb ZonesProperty Rights Assignments to Curb Zones

Fig. 10-2

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Curb ZonesCurb Zones

• Auctioning Curb Zones Auctioning Curb Zones • Zones sold/auctioned off by authorities Zones sold/auctioned off by authorities

as leasesas leases

• Curb Zone EntrepreneursCurb Zone Entrepreneurs• Leaseholders sublet Leaseholders sublet

Page 41: CURB RIGHTS

Four Four ParticipantsParticipants in Curb in Curb Rights SystemRights System

1.1. Local officialsLocal officials

2.2. Curb zone leaseholdersCurb zone leaseholders

3.3. Transit operators (bus companies, jitneys, Transit operators (bus companies, jitneys, etc.)etc.)

4.4. PassengersPassengers

These parties will all follow the principles of These parties will all follow the principles of explicit property rightsexplicit property rights and and contractscontracts (not government ownership or regulation)(not government ownership or regulation)

Page 42: CURB RIGHTS

Further Issues in Curb Further Issues in Curb RightsRights

• Enforcement of Curb RightsEnforcement of Curb Rights

• Emergence of Staging Areas on Private Emergence of Staging Areas on Private PropertyProperty

• Governing the CommonsGoverning the Commons

• Curb Zone Robber BaronsCurb Zone Robber Barons

• Government Imperfection in Creating Curb Government Imperfection in Creating Curb RightsRights

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Ideas for Ideas for Transition PolicyTransition Policy

• Curb rights can be incorporated into Curb rights can be incorporated into existing transit routesexisting transit routes

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Why curb rights?Why curb rights?

Reliable, scheduled serviceReliable, scheduled serviceANDAND

Real competitionReal competition

• Problems of transit that are avoided: Problems of transit that are avoided: • Lack of on-the-road competition, schedule Lack of on-the-road competition, schedule

jockeying, jitney interlopingjockeying, jitney interloping

Curb rights are an antidote to political Curb rights are an antidote to political intervention, government takeover, and intervention, government takeover, and transit service deterioration transit service deterioration

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Criticisms against Criticisms against market-market-based transitbased transit

• The problems that The problems that curb rightscurb rights will solve: will solve:• Cutthroat Competition Cutthroat Competition • Failures to Achieve Economies of DensityFailures to Achieve Economies of Density• Dis-coordination of Transit connectionsDis-coordination of Transit connections• Failures to provide good consumer informationFailures to provide good consumer information• Curbside Conflict Curbside Conflict • Inadequate Passenger FacilitiesInadequate Passenger Facilities

Property rights system should largely Property rights system should largely dispel these traditional criticisms of dispel these traditional criticisms of free-free-market transitmarket transit

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Conclusion:Conclusion:

Curb rights introduces the combination ofCurb rights introduces the combination ofmonopoly and lawless competitionmonopoly and lawless competition

• Two features of market processTwo features of market process1.1. CompetitionCompetition2.2. Discovery of new opportunities for service based on Discovery of new opportunities for service based on

entrepreneurial changes of local conditionsentrepreneurial changes of local conditions

• Incorporation of both kinds of markets: Incorporation of both kinds of markets: • Scheduled (unsubsidized) bus service Scheduled (unsubsidized) bus service • Unscheduled jitneysUnscheduled jitneys

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Policy Proposal:Policy Proposal:

• Property rights system needs to Property rights system needs to become the core of transit policybecome the core of transit policy• ProposalProposal: Create exclusive and : Create exclusive and

transferable transferable curb rightscurb rights (to bus stops (to bus stops and other pickup points) leased by and other pickup points) leased by auction.auction.

• This would ensure both the availability This would ensure both the availability of public transit and the benefits of a of public transit and the benefits of a free market system.free market system.