Tradable Equity Credits (TECs) for public transit: a dynamic pricing approach for heterogeneous travelers

Public transit systems are vital for providing equitable access to jobs, education, healthcare, and other essential services. However, transit agencies face increasing challenges balancing financial sustainability with transportation equity, particularly in the wake of the COVID-19 pandemic. This paper introduces the Tradable Equity Credit (TEC) scheme, a novel market-based approach designed to incentivize transit agencies to enhance transportation equity while managing network demand and maximizing farebox revenue. The TEC scheme operates under a baseline-and-credit system, where transit agencies earn credits by surpassing equity targets and incur debts when they fall short. These credits are assigned monetary value and traded in an open market, providing financial incentives for agencies to adopt equity-focused policies without compromising revenue objectives. Unlike traditional subsidy programs, TEC dynamically allocates resources based on measurable equity improvements and promotes inter-agency collaboration. This paper develops a nonlinear programming (NLP) model to describe transit agencies’ decision-making in the TEC market, integrating equity considerations into revenue management strategies considering heterogeneous travel demand. The model’s equilibrium credit price is derived through Lagrangian dualization of the equity constraints and explored via variational inequality (VI) formulations. We propose a backpropagation-based iterative algorithm to solve the model efficiently. Case studies, including a real-world application in Sioux Falls, South Dakota, demonstrate the feasibility and effectiveness of the TEC framework. The findings show that TEC can serve as a revenue-neutral and scalable mechanism for improving transportation equity in public transit systems.