Friday , January 28 2022
Home / Managerial Econ / Why is St. Louis considering restarting a trolley that no one wants?

Why is St. Louis considering restarting a trolley that no one wants?

Summary:
Maxim:  Consider all costs and benefits that vary with the consequence of a decision [if you miss some that is the hidden-cost fallacy]; but only costs and benefits that vary with the consequence of a decision [if you consider irrelevant ones that is the sunk-cost fallacy].  Application:  Should St. Louis should restart its money-losing street car?2018: The trolley started operational life —six years behind schedule and about million over budget.  Ticket revenue was 10% of what was originally forecast and nearbt businesses hated it.2019:  St Lous shut it down, but the Federal Transit Administration (FTA) demanded the return of million the government paid for the project. Analysis:  Reviving the streetcar would require additional operating funds, BUT not reviving it would require

Topics:
(Luke Froeb) considers the following as important:

This could be interesting, too:

(Luke Froeb) writes Revealed preference

(Luke Froeb) writes How to sequester carbon cheaply: buy a coal mine!

(Michael Ward) writes Hidden Costs of Software Migration

(Luke Froeb) writes Vaccine inequality

Maxim:  Consider all costs and benefits that vary with the consequence of a decision [if you miss some that is the hidden-cost fallacy]; but only costs and benefits that vary with the consequence of a decision [if you consider irrelevant ones that is the sunk-cost fallacy].  

  • 2018: The trolley started operational life —six years behind schedule and about $10 million over budget.  Ticket revenue was 10% of what was originally forecast and nearbt businesses hated it.
  • 2019:  St Lous shut it down, but the Federal Transit Administration (FTA) demanded the return of $37 million the government paid for the project. 
Analysis:  Reviving the streetcar would require additional operating funds, BUT not reviving it would require paying back $37 million.

Lest you commit the hidden-cost fallacy, returning the federal funds would also hurt the St. Louis ability to secure federal grants for future projects, i.e., from the President Biden's $1.2T infrastructure bill.

Prediction: St. Louis will revive the trolley that no one wants.

HT:  Michael

Leave a Reply

Your email address will not be published. Required fields are marked *