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Welfare effects of a transport subsidy in a spatial price equilibrium

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  • Bröcker, Johannes

Abstract

The paper shows that in a spatial price equilibrium under monopolisitc competition welfare can be increased by subsidising transport. Therefore transport can be said to exert a positive (pecuniary) externality. This is demonstrated by introducing a subsidy into a partial spatial price equilibrium of the Hotelling-Smithies type in one-dimensional space. Two varieties of demand are analysed, linear and negative exponential. The welfare effect of a transport subsidy is shown to be decomposable into three effects, the expansion effect, the competition effect and the market size effect. Numerical results and decompositions are presented.

Suggested Citation

  • Bröcker, Johannes, 1998. "Welfare effects of a transport subsidy in a spatial price equilibrium," Discussion Papers 3/98, Technische Universität Dresden, "Friedrich List" Faculty of Transport and Traffic Sciences, Institute of Transport and Economics.
    • Handle: RePEc:zbw:tudiwv:398
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    References listed on IDEAS

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    6. Greenhut,Melvin L. & Norman,George & Hung,Chao-Shun, 1987. "The Economics of Imperfect Competition," Cambridge Books, Cambridge University Press, number 9780521305525.
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