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Estimating welfare changes from efficient pricing in public bus transit in India

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  • Deb, Kaushik
  • Filippini, Massimo

Abstract

Three different and feasible pricing strategies for public bus transport in India are developed in a partial equilibrium framework with the objective of improving economic efficiency and ensuring revenue adequacy, namely average cost pricing, marginal cost pricing, and two-part tariffs. These are assessed not only in terms of gains in economic efficiency, but also in changes in travel demand and consumer surplus. The estimated partial equilibrium price is higher in all three pricing regimes when compared to the current price. As a result, consumer surplus falls in all three cases. The price increase is much larger with average cost pricing compared to marginal cost pricing or two-part tariffs, and hence a larger fall in demand and consumer surplus occurs due to average cost pricing. While there is a gain in economic efficiency from marginal cost pricing and two-part tariffs, this improvement comes at the expense of reduced public bus transit demand and consumer surplus, given the price inelastic public bus transit demand estimated for India. Given the mobility needs and the developmental concerns of a growing economy such as India, the challenge for policy makers is to balance the gains in economic efficiency in the public bus transit sector against other social, political, and developmental goals.

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Bibliographic Info

Article provided by Elsevier in its journal Transport Policy.

Volume (Year): 18 (2011)
Issue (Month): 1 (January)
Pages: 23-31

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Handle: RePEc:eee:trapol:v:18:y:2011:i:1:p:23-31

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Keywords: Public transport Cost estimation Pricing India Bus;

References

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  1. Kaushik Deb & Massimo Filippini, 2013. "Public Bus Transport Demand Elasticities in India," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 47(3), pages 419-436, September.
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  15. Braeutigam, Ronald R., 1989. "Optimal policies for natural monopolies," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 23, pages 1289-1346 Elsevier.
  16. Nash, Chris, 2003. "Marginal cost and other pricing principles for user charging in transport: a comment," Transport Policy, Elsevier, vol. 10(4), pages 345-348, October.
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