Subsidisation of urban public transport and the Mohring effect
user's waiting time, economies of scale, urban public transport
Mohring (1972) argues that urban public transport exhibits considerable economies of scale if users' waiting time is included in the cost function. The implication is that without subsidisation, frequencies will be lower than socially optimal. This paper analyses this argument and shows that economies of scale do not constitute a justification for general subsidisation of urban public transport. If an operator is allowed to take the demand effect of their pricing and frequency decisions into account, then the profit-maximising frequency is shown to be at least as high as the welfare-maximising frequency.
Permission to publish the abstract has been given by Journal of Transport Economics and Policy (JTEP), copyright remains with them.
van Reeven, P. (2011). Subsidisation of urban public transport and the Mohring effect. Journal of Transport Economics and Policy (JTEP), Vol. 42, (2), pp. 349-359.