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The political economy of public transport pricing and supply decisions

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  • DE BORGER, Bruno
  • PROOST, Stef

Abstract

This paper studies the political economy of public transport pricing and quality decisions in a hypothetical two-region federation. In each region there are two types of people: people not owning a car using only public transport, and car owners that demand both public transport and car trips. Each group may be a majority in the region and may also travel in the other region. Under regional decision-making, the political process may result in very low public transport fares, even if car owners are a large majority of the population. Cost recovery always improves with the share of outside users. Second, imposing a zero deficit constraint on regional public transport operators implements the second-best welfare optimum. Third, decentralized decision making leads to higher fares and better cost recovery. Our findings are consistent with very large public transport subsidies in Europe, and with the tendency towards decentralization of public transport policy-making.

Suggested Citation

  • DE BORGER, Bruno & PROOST, Stef, 2015. "The political economy of public transport pricing and supply decisions," Working Papers 2015010, University of Antwerp, Faculty of Business and Economics.
    • Handle: RePEc:ant:wpaper:2015010
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    8. Xuto, Praj & Anderson, Richard J. & Graham, Daniel J. & Hörcher, Daniel, 2021. "Optimal infrastructure reinvestment in urban rail systems: A dynamic supply optimisation approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 147(C), pages 251-268.
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    More about this item

    Keywords

    Public transport pricing; Tax competition; Federalism;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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