Downs-Thomson paradox and public transit capacity choice in the laboratory

Abstract

The aim of this paper is to study empirically the Downs- Thomson (DT) Paradox, a situation where additional road capacity can cause an increase in total travel cost for users that are to choose between Private Car and Public Transit. To this end, we design a laboratory experiment based on a Two-Mode Entry Game where subjects have to enter either in a road mode or in a public transit mode. Road capacity being exogenous, public transit capacity is chosen by the operator. In this theoretical framework, the optimal strategy for operator is to minimize capacity, and the equilibrium for users depends on the endogenous public transit capacity compared to exogenous road capacity. As a consequence, an exogenous increase of road capacity, by shifting users’ equilibrium, will cause a decrease in payoffs for all users (DT Paradox). On the contrary, a decrease in Road Capacity should increase total payoff. To test these theoretical predictions, two experimental treatments are implemented, each of them consisting in a certain capacity level for Road. The most important result is that Downs-Thomson Paradox is observed within the laboratory: An increase in road capacity actually shifts participants from Public Transit to Road, causing a decrease in payoffs for the entire group. But the reverse is not empirically true: A decrease in capacity does not raise payoffs, which contradicts our theoretical model. Results also show that the capacity chosen by operator differs from Nash prediction, levels being higher than those predicted by our model.