Diminishing Returns from Public Transportation Infrastructure

While politics can make just about any issue a challenge to achieve consensus, debates over public transportation infrastructure tend to be less partisan. Finer details, such as spending levels may still require compromise, but many on both sides of the aisle see the benefits of public transportation improvements that uplift individuals and communities alike.

The argument in favor of public transportation is simple: roads, bridges, and highways connect producers and consumers (including workers and firms), thereby decreasing trade costs and increasing participation through facilitated mobility. In general, society also sees increases in real incomes, overall productivity, and competition, thanks to greater interconnectedness enabled by these infrastructure networks. In more densely populated urban areas, where frequent car travel is less sustainable (due to short distances, traffic, fuel costs, and parking limitations), public transit is more prevalent, offering options such as bus and light/heavy rail systems, saving passengers both time and money.

The adoption and expansion of these transportation systems have undoubtedly resulted in substantial economic growth in the U.S since their inception, albeit varying with factors like population density, ridership, and even legal and cultural differences among localities, regions, and states. Cities like New York and Washington, D.C. have become virtually synonymous with options like the “subway” or “metro.” However, substantial price tags associated with costs of upkeep and repair, renovation, and replacement have led economists to reconsider the economic multiplier effects of such infrastructure, given the costs required to maintain it.  

The law of diminishing marginal returns states that, beyond a certain point, increasing one input, ceteris paribus (all other things being equal), leads to decreasing marginal output. For example, additional investment in the maintenance of certain infrastructure may not yield returns proportionate to the proposed improvements. Despite cheaper and safer transit options for beneficiaries, some systems may begin to incur economic losses when upkeep becomes relatively unsustainable. 

Consider the construction of a city-wide heavy rail train (HRT) system. Depending on the reach, the project could require hefty upfront fixed capital costs totaling billions of dollars. However, since this is a one-time payment, we’d consider it a sunk cost, as our interest remains in the additional changes and investments. At the margin, recurring operating and management (O&M) expenses soon follow these initial construction costs; it is these that lead economists to raise questions about wastefulness in terms of expected costs and benefits. 

COVID-19 has greatly contributed to the emergence of diminishing returns in the domain of public transit. With the persistence of informal social-distancing norms and the prevalence of remote/hybrid work six years after the onset of the pandemic, fewer people are making daily commutes to the office. Because of this, as of 2025, most, if not all, HRT systems have yet to attain ridership levels comparable to pre-pandemic levels. Even the New York subway (MTA), the most prolific system in the United States, has experienced only 85 percent of its ridership since 2019.

Although 1.3 billion MTA rides in 2025 might sufficiently indicate that the area is seeing returns on investment despite post-pandemic deficits, this is not the reality in smaller systems, such as in Cleveland, Ohio (RTA). RTA saw an almost 24 percent decrease in ridership, with 24.5 million rides in 2025. This is especially consequential for a system serving a significantly smaller surrounding population (1.2 million) than that of New York (8.5 million). This plunge may indicate that if this trend continues, additional investments in O&M might allow systems to break even, but the multiplicative effects expected from such an infrastructure system would increase at a decreasing rate. 

Furthermore, the growing prevalence of rideshare applications such as Lyft and Uber could create a substitution effect amongst public transit users. Google and Apple Maps platforms have built-in app features that allow riders to compare travel times across different modes of transportation. Many LRT/HRT routes require multiple connecting modes to reach a destination, whether changing metro lines, taking a bus transfer, or walking the remainder of the distance. The result is longer commute times, which could discourage transit use and decrease ridership.  

Rideshare offers direct drop-off and pick-up, drastically reducing travel times and increasing convenience compared to trips with several connections. Research shows that such substitution effects were concentrated during working hours, in urban city centers, and in areas with well-developed public transportation systems. These changes in preferences also positively correlate with house prices, suggesting a possible income effect, and classifying rideshare transportation as a normal good and public transportation as an inferior good. As digitization of banking and online transactions continues to increase, we could see rideshare transportation emerge as a significant competitor to public transportation systems, amplifying the effects of diminishing returns from infrastructure investment over time.  

Public transit systems have undoubtedly revolutionized the way we move, work, and live. Many of America’s metropolitan hubs are homes to extensive rapid transit systems that create significant economic multipliers in surrounding communities. However, these systems are likely to generate diminishing returns following future O&M developments, compared to initial yields, simply due to issues of longevity. It is important to acknowledge factors that may accelerate this process, leading to increasingly smaller economic gains, and to propose solutions to prevent once-flourishing projects from producing near-obsolete returns. 

Written by Alexandria Redd, Public Policy Intern