Money for MetroCards: How a New Card Fee Made New York Transit Riders Invest More and Lose More

Since 1998, the New York City Metropolitan Transportation Authority (MTA) system has used prepaid cards (MetroCards) to collect subway and bus fares. In 2013, the MTA imposed a $1 card fee (surcharge) on new MetroCard purchases. After the card fee was imposed, riders started to put more money on new MetroCard purchases. The response to the card fee was greater in low-income neighborhoods and among riders who used cash or debit cards rather than credit cards. As a result, the net monthly outstanding balance from transit card deposits increased dramatically, with riders lending an extra $150 million, on an annual basis, to the MTA. Moreover, over $20 million of the increased balances in the first year were never redeemed and escheated to the MTA when these cards expired. I document these changes using a novel dataset with transaction-level deposit and card use information. The leading explanation highlights the importance of the cost of effort to remember to carry the same card for future periods. I pose a structural model to calibrate the effect of a new card fee. Counterfactual simulation predicts that the optimal new card fee is $4.35 to maximize the MTA’s profit. These findings have implications for fiscal policy designs and fee structures of prepaid card industry. *Department of Economics, Columbia University (email: [email protected]). I thank Brendan O’Flaherty, Pietro Ortoleva, Douglas Almond, and Suresh Naidu for invaluable guidance, assistance and advice. I thank Jushan Bai, Alessandra Casella, Donald Davis, Mark Dean, Francois Gerard, Wojciech Kopczuk, Jonah Rockoff, and Miikka Rokkanen for discussions and comments that shaped the content of this paper. I thank Laxman Gurung, Sun Kyoung Lee, Xuan Li, Janis Priede, Tuo Chen, and Danyan Zha for their help. I also thank the participants of seminars at Columbia University, George Washington University, and NBER Summer Institute for their comments. I thank Tuo Chen for helping with Matlab Codes. I thank Sun Kyoung Lee for providing subway-census-tract data. I am particularly indebted to the staff at Metropolitan Transportation Authority (MTA) who have provided data for my research. All errors are my own.