Privatized Provision of Public Transit

Abstract

Privately-operated minibuses provide 50–100% of urban transit in often cash-strapped developing-country cities, at the cost of long wait times and poor personal safety. To quantify the gains from low-cost reorganization of this privatized provision of public transit, I build the first model of privatized shared transit, which features increasing returns in the form of shorter waits on busier routes and a key role for surplus bus supply as “insurance” against demand spikes. Market power of local minibus associations inhibits realization of the former but facilitates internalization of the latter. I then estimate the model with newly-collected data on minibus arrivals and passenger queues in Cape Town as well as stated preferences for exogenously varied commute attributes. A formalization program of government-set fares and subsidies leverages increasing returns to shrink wait times and queues, while government actions to enforce speed limits or improve security bring even more substantial welfare gains.

Keywords: transportation, development, informal transport, privatized transit, public transit, quantitative spatial model, urbanization, endogenous transport costs, minibus, commuting, stated preference, spatial misallocation, carbon emissions, queueing

JEL Classification: O1,R