Marginal Cost Pricing and Subsidy of Small Urban Transit
Document Type
Journal Article
Publication Date
2012
Subject Area
economics - economies of scale, land use - urban density, economics - subsidy, place - north america, mode - bus
Keywords
economies of scale, density, subsidies, small urban areas, bus
Abstract
This study analyzes economies of scale and density as a rationale for subsidizing transit agencies in small urban areas. A long-run cost model is estimated with data from 2006 to 2009 for 168 transit agencies that directly operated fixed-route bus service in small urban areas. With vehicle revenue miles used as transit output, results show that small urban transit agencies experience economies of scale and density. A full-cost model is estimated; the model includes the addition of external costs and benefits. External benefits result from the reduced waiting times that follow an increase in service frequency. Results are used to estimate the optimal fare, which is equal to marginal social cost of service. The needed subsidy is calculated as the difference between the revenue generated by the optimal fare and that needed to maintain efficient levels of production. The rationale for subsidies is an important issue, as many agencies have experienced recent reductions in operational funding.
Rights
Permission to publish the abstract has been given by Transportation Research Board, Washington, copyright remains with them.
Recommended Citation
Mattson, J., & Ripplinger, D. (2012). Marginal Cost Pricing and Subsidy of Small Urban Transit. Transportation Research Record, Vol. 2274, pp. 77-83. Published by Transportation Research Board, Washington.
