Curb rights: eliciting competition and entrepreneurship in urban transit.

• Author: Klein, Daniel B.

Urban transit in the United States has long been dominated by government ownership and regulation, and has been declining steadily in ridership and productivity (APTA 1995). An economist-cum-policymaker would seek to inject competition and entrepreneurship into the sector by privatizing it. The two types of privatization often advocated are contracting out and "free competition" (Department of Transportation 1984; Lave 1985; Gomez-Ibanez and Meyer 1993). Experience has shown, however, that each approach has serious shortcomings.

Contracting out allows government officials to set routes, fares, and the types of vehicles to be used, while putting production and operations in the hands of cost-conscious private companies. Small cities and counties have increasingly contracted out bus service. Larger transit agencies have a harder time establishing major contracting programs, in part because of privileges granted to transit unions. Contracting has reduced costs significantly (Teal 1988, 218ff; Perry, Babitsky,. and Gregersen 1988, 134ff), but contracts, even when competitively let, preserve transit monopoly and service regimentation. Transit agencies use various contracting schemes, which Williamson (1976) and Goldberg (1976) have criticized because the methods tend in practice to resemble regulated monopoly.

The second proposal, "free competition," promises on-the-road competition, perhaps in the form of freewheeling jitneys, which are small vehicles that pick up and drop off passengers along a route but do not necessarily follow a schedule. The deregulation or "free competition" precept is incomplete, however, when applied to a service that operates on government property, namely, the roadway, curbspace, and sidewalk areas where passengers congregate in waiting. Bus operators must invest in cultivating passenger congregations and must be able to appropriate the returns on their investment. Depending on how "free competition" is governed, it might give rise to parasitic interloping on routes, where jitneys run ahead of scheduled buses to pick up waiting passengers. Such interloping might undermine any scheduled service and inhibit the development of transit markets. All this activity takes place on public property where market mechanisms are lacking.

Calls to merely privatize the buses and to deregulate bus operations have neglected crucial issues rooted in the management and utilization of the public domain. They ignore curbspaces as a fundamental resource of the industry. In fact, the rules -- property rights -- governing passenger pickup areas are a determining feature of transit markets. Variations in curb rights explain the differences in transit markets seen in the United States and elsewhere. An appreciation of curb-rights issues leads to a better understanding of transit markets.

We proceed by first examining four case studies of transit markets with deficient property rights: the jitney episode in the United States, 1914 to 1916; jitneys and route associations in less-developed countries (LDCs); illegal jitneys in New York City; and the British experience of bus privatization and deregulation. These case studies help us to develop a logic of transit operations and to formulate a theory of transit markets. Finally, we propose a system of "curb rights" that promises to improve transit markets.

Transit Markets with Deficient Property Rights

The U.S. Jitney Episode of 1914 to 1916

When the automobile came on the scene, so did freewheeling competition in urban transit. Jitneys charging a nickel per ride picked up waiting passengers along the routes of the electric streetcars. The jitneys were usually just the sedans of the day, serving as shared-ride taxicabs along loosely defined routes. They quickly became popular because of their flexibility and speed -- almost twice that of the streetcars. They were more comfortable and less crowded, and sometimes they would deviate from the main route to make courtesy drop-offs. By 1915 jitneys operated in most major cities and reportedly numbered 62,000 nationally (Eckert and Hilton 1972, 295-96; Saltzman and Solomon 1973, 63).

Streetcar companies immediately reported losses due to jitney competition, and many began laying off employees and cutting service. But jitneys did not just interlope on streetcar routes; they also filled important market niches. For the most part jitneys made short trips and provided transportation to many people who otherwise would not have been served by the streetcars. Although jitneys charged no more than the streetcars, their gross revenues far exceeded the streetcars' loss of revenue (Eckert and Hilton 1972, 296; Rosenbloom 1972, 5).

The jitneys were loosely organized and highly spontaneous. Most jitney drivers were independent, some between jobs or working part-time to supplement their income. Many were simply working people who picked up fares on the way to their regular job. Others were teenagers who borrowed their parents' car to earn money after school (Eckert and Hilton 1972, 294). jitneys adapted flexibly as demand changed with the weather, time of day, day of the week, special events, and so on. Despite the decentralized nature of jitney transport, there emerged customs, voluntary associations, and company fleets. The associations helped drivers obtain insurance and share maintenance services and protected the drivers from hostile lawmaking; sometimes the associations coordinated routes and schedules for their members (Eckert and Hilton 1972, 295-97).

The electric streetcar companies saw the jitneys as an infringement on their exclusive franchises and lobbied the government to regulate the jitneys. The municipalities went along with streetcar demands, in part because the streetcars afforded them tax revenue and free movement of police and fire department personnel (Hilton 1985, 37). Municipalities required jitney drivers to obtain substantial liability bonds and operating permits. These measures and other antijitney ordinances proved fatal. The jitneys had largely disappeared by 1917, after just two years of rapid growth and experimentation.

The jitney situation posed a fundamental question of property rights: Is interloping on scheduled service a form of theft or a form of legitimate competition? The authorities decided it was theft, plain and simple, and instead of developing a framework that could accommodate competitive coexistence, they stamped out freewheeling transit in favor of large-scale monopoly.

Jitneys and Route Associations in the Less-Developed Countries

Transit services similar to the U.S. jitneys of 1915 still operate on the streets of hundreds of cities throughout the less-developed world. Takyi (1990) describes the jitney's appeal to riders:

They charge relatively low fares and provide wide coverage across a

city, often serving poor areas that get no other service. Their

operations are flexible so they can add service at peak times and

quickly cover new neighborhoods. Their small size and cheap labor

enables them to profitably provide frequent service in smaller

neighborhoods and along narrow streets, as well as work the main

thoroughfares. With fewer passengers, they often make fewer stops

and faster time. (171)

The American jitneys of 1915 had these advantages until regulations blunted their competitive edge. In the LDCs, laws have been passed to prevent jitneys from interloping on official service and from establishing competing routes, but the enforcement is lax, and, as Takyi (1990) says, the jitneys "never operate legally" (175). Takyi tells of "the loss of passengers at transit stops to jitneys during lean as well as peak periods."

As jitney service develops in thick transit markets, various curbside conflicts and confusions start to occur. Any operator who attempts to establish scheduled service will face interloping. Some operators will run ahead of the scheduled service; others will linger at the curb to fill up, disrupting traffic and taking ridership from the arriving vehicle (Roth and Shephard 1984, 4; Diandas and Roth 1995, 27-28; Takyi 1990, 167, 175). Consumers may be reasonably well served, but discoordination and lack of trust are often severe (Grava 1980, 285).

Often the jitney operators form a route association, an informal organization to bring order and regularity to service by means of extralegal norms and explicit rules. The jitney literature suggests that route associations have in large measure governed transit services in Lima (De Soto 1989), Hong Kong, Istanbul, Buenos Aires, Manila, Calcutta, and Caracas (Roth and Shephard 1984; Takyi 1990). The route association becomes a regulatory body, similar to government but more local and entrepreneurial. The association lays down rules against interloping and deviating from schedules. It also fixes fares on the route, which may vary with time of day. Associations create enough order to control destructive conflict, but they also operate as cartels. Roth and Shephard (1984, 42), De Soto (1989, 99), Grava (1980, 282), and Cervero (1997, 130, 142) report that associations limit entry.

Thus we arrive again at the issue of rights to waiting passengers -- curb rights. Jitneys initially transgressed the curb rights of the official bus operators, yet eventually organized to establish curb rights for themselves. How, then, do they prevent new interlopers from transgressing their rights? Mainly, it seems, by employing physical intimidation and strong-arm tactics. Roth (1987) notes that "the methods used by route associations to protect their territory can become criminal, unlawful, perhaps even homicidal" (224-25). Sigurd Grava (1980) describes route enforcement by means "considerably beyond the law" by "district strongmen,...local bosses, criminal gangs, powerful families, brotherhoods of operators or otherwise legal associations" (282). As is common in black markets everywhere, outlaw entrepreneurs employ violence to maintain their...