Highlights • In Germany, many universities have mandatory student tickets for public transport. • These tickets allow the use of public transport at no additional monetary costs. • The mandatory purchase leads to lower transaction costs, and thus cheaper tickets. • I analyze this flat-rate public-transport access in a political-economy equilibrium. • This may yield insights for fare-free public-transport in general.

Abstract In Germany, many universities have student tickets that are bargained for between student representatives and public transport companies, approved by referendum, and mandatory for all students. They allow the use of public transport at no additional cost. I analyze such a scenario in a theoretical model as an example of a flat-rate ticket for public transport which is implemented by majority decision. The mandatory character of the ticket reduces transaction costs like marketing and ticket inspection, reducing the ticket price and thus the students’ commuting expenses. However, there is a countervailing effect. Students face and rationally expect zero marginal monetary commuting costs, so that new students choose a place of residence which is relatively far from the university. This in turn raises the equilibrium ticket price. It may even be the case that students would be better off if such a ticket had never existed. Nonetheless, they always vote for it in referenda, because accepting the high price is optimal given their place of residence. After laying out the model, I analyze an optimal policy, which consists, for example, of subsidizing student dorms at an efficient distance to the city center.