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Optimal supply of public transport: subsidising production or consumption or both?

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Abstract

This paper compares two approaches for providing public transport: competitive tendering and vouchers. The functioning of tendering is well known. The voucher alternative means that commercial operators charge passengers a fare and are also paid by the public sector principal for each. The paper establishes that it is also necessary to subsidize quality, here referring to the number of busses. Under full information, the two approaches would result in the same welfare maximizing outcome. Vouchers may be more expensive for taxpayers. The case for vouchers is shown to be stronger under an asymmetric information framework.

Suggested Citation

  • Nilsson, Jan-Eric & Ahlberg , Joakim & Pyddoke, Roger, 2014. "Optimal supply of public transport: subsidising production or consumption or both?," Working papers in Transport Economics 2014:27, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    • Handle: RePEc:hhs:ctswps:2014_027
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    File URL: http://www.transportportal.se/swopec/CTS2014-27.pdf
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    References listed on IDEAS

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    5. David A. Hensher & Ian P. Wallis, 2005. "Competitive Tendering as a Contracting Mechanism for Subsidising Transport: The Bus Experience," Journal of Transport Economics and Policy, University of Bath, vol. 39(3), pages 295-322, September.
    6. Pyddoke, Roger & Andersson, Matts, 2010. "Increased patronage for urban bus transport with net-cost contracts," Working Papers 2010:8, Swedish National Road & Transport Research Institute (VTI).
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    9. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Tendering; Vouchers; Mohring effect; Public transport; (A)symmetric information;
    All these keywords.

    JEL classification:

    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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