Fare policy and vertical equity: The trade-off between affordability and cost recovery

Abstract

Vertical equity and the maximization of farebox revenue are important but conflicting goals in the development of fare policy in the United States. Reducing fares for low-income riders reduces revenue for a transit agency, while increasing fares could disproportionately impact lower-income riders. This paper details this conflict, explores strategies that could account for both goals, and evaluates fare programs in the United States. Two types of low-income strategies are discussed: first generation strategies and targeted subsidy strategies. First generation strategies have several limitations that targeted subsidy strategies account for; first generation strategies focus more on supply, while targeted subsidy strategies focus more on demand. The evaluation of US low-income fare programs found that organizational partnerships can reduce administrative and financial impacts to agencies, local ridership characteristics need to be considered in designing a program, and that smart card technology is useful but not required to create a targeted subsidy program.