Center Identification Number: 527-14
Project Title: Price Elasticity of Rideshare: Commuter Fringe Benefits & Parking Cash-Out
Wambalaba, Senior Research Associate
Victoria Perk, Senior Research Associate
for Urban Transportation Research
External Project Contact:
I. Project Objectives
This research project aims at determining the price elasticity of ridesharing with specific objectives of helping to assess what the effect on ridership would be if the effective price paid by the traveler was substantially reduced (i.e., increase in employer co-pay) or increased (i.e., decrease in employer co-pay). Because of the multiple modes for providing rideshare, this research will be limited to the study of vanpools. The results from this study will be of particular interest to rideshare agencies, transit service providers, transportation professionals and transportation funding organizations with the potential for improving their customer service and customer base.
II. Project Abstract
Section 132(f) of the Internal Revenue Code allows most employers to provide a tax-free benefit to employees of up to $100 per month for transit and vanpool fares and up to $185 per month for parking fees. It has been hypothesized that transit and vanpool co-pay programs by employers could have a dramatic impact on transit ridership as well as other alternatives to driving alone. Given that the maximum amount an employer can give employees under the current tax benefit program is $100 per month for transit and vanpooling employees, it could be argued that employees who receive such a benefit from their employers could be receiving transit services at a very low cost or even for free without public subsidies and therefore, ridership potential should be significantly higher.
One of the objectives in this study is to include large variations by companies that have made major changes in their co-payment program. Because of the multiple modes for providing rideshare, this research will be limited to the study of vanpools. The study will replicate the Linsilata and Pham transit study methodology by applying it to the study of vanpools. Three key tasks are envisioned. First, the study will review literature to either refute or support the currently perceived unmet gaps, both in terms of findings and methodology. Secondly, the study will collect data from both secondary and primary sources to do the analysis. Finally, based on the findings from the analysis, the study will provide both policy implications and recommendations for future research needs. While data observations for the study will be obtained from around the country, to the extend data are available, a sub-analysis will be done for the State of Florida to provide a base for further comparative analysis.
While several studies have been done to measure respective elasticities in the service sector, very few have been done to measure price elasticity of rideshare. This study attempts to identify gaps in current efforts to measure price elasticity of rideshare.
For example, there are several examples of the price elasticity studies conducted in the public transit sector on modes other than rideshare. A study by Richard Voith, "The Long-Run Elasticity of Demand for Commuter Rail Transportation," aimed at analyzing rail transit ridership in the Philadelphia area to determine how users respond to changes in transit price, service levels (e.g., train frequency), and alternative transportation options (e.g., cars). In a related study of Fare Elasticity and Its Application to Forecasting Transit Demand, the objectives of the study were to verify the Simpson-Curtin formula using updated data and modern technologies, and to provide a set of fare elasticity estimates for bus service in various cities during peak as well as off-peak hours. Some analyses have focused on public subsidy effect. For example, in the Zero Elasticity Rule for Pricing a Government Service, the study investigated the properties of the "zero-elasticity" pricing rule in which the agency sets an initial price, observes the resulting usage of the service, assumes that demand is totally price-inelastic and replaces the initial-price with one calculated to solve the budgetary problem, and then observes the usage that actually occurs and reapplies the zero-elasticity assumption.
However, there are very limited numbers of studies conducted on rideshare. One of the most recent studies on rideshare was a 1996 ECONorthwest study of the Vanpool price elasticity of the King County Department of Transportation, which used employer data to predict the fraction of employees who vanpool to work. This model had two major drawbacks. First, it was based on 58 observations drawn from the Commute Trip Reduction (CTR) program data of companies that had vanpool programs. This small number of observations can lead to highly unstable estimates, and the results may be biased towards vanpooling since companies with vanpooling programs in place may promote the concept more widely than occurs in the general market. Secondly, there was a substantial degree of correlation between the independent variables, which made it extremely difficult (if not impossible) to isolate the impact of vanpool price differences alone.
The 2000 CUTR vanpool fare elasticity model for the Puget Sound area used the 1999 CTR employer survey records on 360 employers and 229,000 commuter responses. Even then, the model explained only 8.2% of the variance. This means that many other factors are involved in the adoption of vanpooling as a commute mode. The identification of those factors was, however, beyond the scope of that study.
It is uncertain whether the ranges of price changes in these previous studies were so small that the new maximum allowable amounts of up to $100 per month co-pays were off the chart. There is no way of knowing what the impact would be on ridership since it falls outside of the range of experiences used during subsequent studies. For example, what would the impact be for large decreases in transit fares such as from $1.00 to $0.00 per trip instead of observing ridership changes for small increases such as from $1.00 per trip to $1.25 per trip? How about impacts of large increases in parking costs from free parking to $80 per month, or implementation of parking cash out?
Therefore, the goal of this research project is to determine the price elasticity of rideshare with specific objectives of helping to assess what the effect on ridership would be if the effective price was substantially reduced.
III. Task Descriptions
Task 1: Research Review
This task will involve a comprehensive review of past research into efforts to measure price elasticities in the service sector, especially public transportation. This literature review will identify methodologies and findings, if any, from past studies to serve as a starting point for the research. This will help avoid "reinventing the wheel" and refine specific gaps and deficiencies in the existing body of knowledge. If not available, the study will attempt to develop such a process. The review will include an examination of research conducted on other modes of transportation.
Task 2: State of the Practice of Measurement in Rideshare Industry
The current literature is very scanty and most transit and rideshare agencies rely on past history, intuition and/or informal observations to set their fares/price. This study will identify and document specific study methods that have been used with the goal of replicating suitable methodologies for comparative purpose. So far, few quantitative surveys appear to show the impact of price on rideshare ridership, including Vanpool Pricing and Financing Guide, and a report on Puget Sound Region Vanpool Market Assessment. This research study will review existing literature to update the state of the measurement practice especially as it pertains to rideshare service.
Task 3: Surveys of Rideshare Organizations
As part of this project, the study will collect primary and secondary data from a variety of sources including rideshare organizations from various parts of the country, which will participate in the survey. An effort to include a statistically significant sample from Florida will be made in order to estimate the price elasticity of vanpools in Florida. Specifically, the study will seek to collect data from at least 100 employers and/or organizations to include, but not limited to, 1) transit and other rideshare agencies, 2) employers and users through third party administrators such as Commuter Check, Transit Check etc, and 3) other public data sources such as the Bureau of Labor Statistics. The variables for research analysis will include: (1) the levels and changes in prices or cost related factors; (2) other potentially influencing factors including but not limited to gas price, vehicle miles, parking cost, transit fares, etc; and (3) trends in ridership. Therefore, the type of data to be solicited will include, 1) the amount of fare subsidies, 2) amount of parking cashout, 3) related data such as the price of gas, average vehicle miles, average parking cost, transit fares, etc. and 4) other anecdotal information.
Task 4: Analyses of Findings
Findings from the literature review and surveys will be analyzed both qualitatively and quantitatively to determine the nature of price elasticity in the vanpool industry both nationally and in Florida.
Task 5: Final Reports
product of this investigation will be a description of current perceptions of
rideshare elasticity in comparison with actual findings from the study,
including measurement tools available, data collection needs, analytic tools,
level of accuracy, and reporting of results. Additionally, recommendations for
next steps to take will be made.
IV. Project Schedule/Milestones
Project Start Date: January 1, 2003
V. Project Budget
Notes: This budget does not reflect any federal participation.
The project team will include faculty, students, and secretarial and other support staff who will work directly on the project and whose costs are reflected in the direct costs of the project as listed above.
VI. Student Involvement
Graduate students may play a role in the research and data collection as well and the analysis and report writing. Other anticipated student benefits will include synthesis of information and technology transfer support.
VII. Relationship to Other Research Projects
Currently, the Florida rideshare agencies do not have good information or a systematic assessment of rideshare pricing to base their pricing decions on. There is a similar void at the national level. However, the Center for Urban Transportation Research (CUTR) has conducted previous work on the subject in this area including an FDOT project to develop a vanpool pricing and financing guide. Similarly, CUTR was one of the four consultants who worked on the WSDOT report about the Puget Sound region vanpool market assessment.
Other related research in this area include a 1996 ECONorthwest study of the Vanpool price elasticity’s of the King County Department of Transportation which used employer data to predict the fraction of employees who vanpool to work. In another research, the goal was to study Fare Elasticity and Its Application to Forecasting Transit Demand. The objectives of the study were to verify the Simpson-Curtin formula using updated data and modern technologies, and to provide a set of fare elasticity estimates for bus service in various cities during peak as well as off-peak hours. Monthly information on other factors that may influence ridership, including gasoline price, vehicle miles of service, labor strikes, etc., were also collected. The purpose was to use the model to isolate the impacts of the fare changes from those caused by other factors. Another related study by Richard Voith, "The Long-Run Elasticity of Demand for Commuter Rail Transportation," aimed at analyzing rail transit ridership in the Philadelphia area to determine how users respond to changes in transit price, service levels (e.g., train frequency), and alternative transportation options (e.g., cars). The results indicated that transit riders were twice as responsive to changes in these factors in the long run compared to the short run. Attempts to balance transit budgets by increasing fares and reducing service quality were thus likely to result in higher subsidies and deficits. The findings suggested that reductions in public transportation subsidies that result in higher fares and lower service quality might produce higher subsidy costs per rider than would be the case with higher total subsidy.
Similarly, in the Zero Elasticity Rule for Pricing a Government Service: A Summary of Findings, Mansik argued that government agencies often offer services or subsidies for which the demand is unknown. The paper focused on the problem faced by such an agency when it must select a price-subsidy level so as to meet a budget constraint. It investigated the properties of the "zero-elasticity" pricing rule in which the agency sets an initial price, observes the resulting usage of the service, assumes that demand is totally price-inelastic and replaces the initial-price with one calculated to solve the budgetary problem, and then observes the usage that actually occurs and reapplies the zero-elasticity assumption. The paper presented analytical results on the dynamics of iterated use of the rule, particularly its convergence to a price solving the budgetary problem, and described a case study of local transit pricing.
This study will enhance these efforts by providing a tool for the vanpool pricing decision process with potential implications for other rideshare options.
VIII. Technology Transfer Activities/Peer Review
This research project is designed to increase the knowledge of public transit officials, Transportation Demand Management (TDM) professionals, and employers about price elasticity of vanpools. Any documentation that is prepared will be made available at conferences in Florida through independently scheduled and funded training sessions. Information will also be made available through the NCTR website as a streaming media presentation and report, TDM Review, the quarterly publication of ACT, TRB and APTA publications and other related venues.
IX. Potential Benefits of the Project
The study will be widely applicable to determining the feasibility of vanpool pricing and will therefore primarily benefit rideshare agencies. However, other organizations such as transit agencies, shuttle service providers, taxi companies and other transportation related companies stand to benefit from the implications of the results to their business. Research into current methods of measuring price elasticity of commuter fringe benefits including vanpool and parking cash-out should result in TDM and other transportation agencies having a clearer understanding of the impact of pricing in the area of public transportation. This, in turn, will allow agencies to improve their pricing strategies as well as consideration of alternatives to increase public transportation and thereby help reduce congestion and air pollution. Similarly, other partial benefits are anticipated to accrue to the research community in terms of modeling and analysis.
X. TRB Keywords
Commuter Assistance Programs
Elasticity of Rideshare
Public Transit Amenities
Rideshare Assistance Programs
Transportation Demand Management
 Journal of Urban Economics 30 (1991), pp. 360-72.
 Linsalata, J. and Pham, L, Fare Elasticity and Its Application to Forecasting Transit Demand, American Public Transit Association, 1991.
 Winters, P, and Cleland, F., Vanpool Pricing and Financing Guide, Center for Urban Transportation research, year?
 York, B., Fabricatore, D., Prowda, B., Winters, P., and Cleland, F., Puget Sound Region Vanpool Market Assessment, WSDOT, 1999.
 Journal of Urban Economics 30 (1991), pp. 360-72.
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