Title

The Effect of Financial Constraints on the Optimal Design of Public Transport Services

Document Type

Journal Article

Publication Date

2009

Subject Area

operations - frequency, economics - pricing, economics - finance, mode - bus

Keywords

Size, Santiago (Chile), Pricing, Optimization, Optimisation, Intracity bus transportation, Frequency of service, Finance, Dimensions, Costs, Bus transit operations, Bus transit

Abstract

Jansson's (1980)work asserted that observed planned bus frequency and size was too low and too large, respectively. Recent experience with the design of bus services in Santiago, Chile, seems to confirm this assertion. This paper attempts to explain this assertion based upon the relation between cost coverage, pricing and optimal design variables. The authors recall that average social cost decreases with patronage, which generates an optimal monetary fare below the average operators' cost, inducing an optimal subsidy. Optimal frequency and bus size—those that minimize total social costs—are compared with those that minimize operators' costs only. The authors show that an active constraint on operators' expenses is equivalent to diminish the value of users' time in the optimal design problem. Inserting this property back in the optimal pricing scheme, it is concluded that a self-financial constraint, if active, always provokes an inferior solution, a smaller frequency and, under some circumstances, larger than optimal buses. In the Santiago case, the need for a subsidy was originally dismissed prematurely and a limit to the fare was exogenously imposed at the beginning of the planning stage, causing a fleet reduction by about 30% with larger buses. This process is now partially being reversed.