How large are benefits to improving transit in cities, and how are the gains shared between low and high-skilled workers? This paper uses detailed tract-level data to analyze the construction of the world's largest Bus Rapid (BRT) system - Transmilenio - in Bogotá, Colombia.
First, I build a quantitative general equilibrium model of a city where low- and high-skill workers sort over where to live, where to work, and whether or not to own a car.
Second, I develop a new reduced form methodology derived from general equilibrium theory to evaluate the effects of transit infrastructure based on "commuter market access", and use it to empirically assess Transmilenio's impact on city structure.
Third, I structurally estimate the model and quantify the effects of the system. I find that while the system caused increases in welfare and output larger than its cost, the gains accrued slightly more to high-skilled workers. The incidence of public transit across skill-groups is determined not only by who uses it most, but also by how easily individuals substitute between commutes, whether the system connects workers with employment opportunities, and equilibrium adjustment of housing and labor markets.
Finally, adjusting zoning regulations to allow increased building densities in affected locations would have led to higher welfare gains. This underscores the benefits to cities from pursuing a unified transit and land use policy.