geetar
The situation I'm trying to capture is one where there's a relatively unpopular route; say we only have one or two busses on the loop. In these cases, more people taking advantage of free busing would only increase the efficiency of the system.
Of course, the utilization of these routes must be high enough to justify the cost; obviously if there is only one passenger for the day it would be cheaper overall for him to just drive.
It's worth mentioning that with public transit, more trips does not contribute linearly to more waste because many riders can take a single bus. Sure, it's probably somewhat more expensive to operate a full bus than an empty one, but there's a net benefit when compared to the cost of operating individual vehicles for all those riders instead.