Problem
The Washington Metropolitan Transit Authority (WMATA) seeks to improve the D.C. Metro rail system. Currently, only some of its train cars are fully accessible, which results in delays and extended commute times for persons with disabilities. The total average commute (round-trip) for persons with disabilities is 2 hours, compared to 1 hour for persons without disabilities. 5,000 persons with disabilities use Metro rail each day, approximately 10% of total ridership. A doctoral student studying disability estimates that persons with disabilities have a linear demand curve for Metro rail train travel, with a price elasticity of demand of -0.6. Further, they estimate that the opportunity cost of time should be valued at $18 per hour.
I. If all trains were immediately made fully accessible, what is the total value of time saved per day for persons with disabilities?
II. WMATA pledges to add enough accessible trains to bring the commute times into parity. Trains with capacity for 5,000 people with disabilities are ordered and put into service. However, after this, everyone is disappointed to discover that wait times are not reduced as much as anticipated-there are still not enough trains for persons with disabilities. As you reflect back on your principles of economics in CBA, you realize WMATA's mistake. What error did WMATA make?
III. WMATA agrees to add still more trains until equity in average commute times is achieved across all riders. Finally, this proves to be successful. How much additional capacity (daily ridership for persons with disabilities) was required?
IV. The cost of all additional trains (the total in B and C) is paid for by a federal grant. What is maximum grant size where society is no worse off, based strictly on NPV and the numbers in this problem. (A full CBA might include the value of other benefits or costs not listed here.) For simplicity, the size of the grant can be expressed as a daily value.
V. A journalist looking into this topic discovers an internal benefit-cost analysis from the 1980s which concluded that it was not worthwhile (a negative NPV) for WMATA to make improvements to better serve persons with disabilities. A huge study was conducted, including surveys and commuting data on the full population (persons with disabilities and persons without disabilities). The economist who conducted that report wrote that "persons with disabilities do not value the train as much (they have a lower willingness-to-pay for Metro rail) than do persons without disabilities." Although the math and econometric estimates were flawless, what problem with naïve benefit-cost analysis does this illustrate? Explain in a paragraph.
VI. As a graduate student, the journalist gives you access to the original dataset and analysis. What are 2 specific ways that you could work with the same numbers in that report to illustrate the problem to the public today?