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Optimal urban transport pricing in the presence of congestion, economies of density and costly public funds

  • Proost, Stef
  • Dender, Kurt Van

Using a numerical model of the urban transportation sector, calibrated to data for Brussels and for London, we calculate the optimal transport price structure and its effect on the transport equilibrium and on welfare. Removing existing subsidies to transit and to parking, internalising transport externalities (mainly congestion) and optimising the frequency of transit service increases welfare by approximately 2%. Optimal prices are higher than current prices in most transport markets, so that optimal transport demand is below current demand. There is a strong shift to public transport in the peak period. Finally, calculations for Brussels of optimal public transport prices for unchanged reference car taxes indicate that only limited welfare gains can be obtained by charging near-zero transit fares in peak hours.

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Article provided by Elsevier in its journal Transportation Research Part A: Policy and Practice.

Volume (Year): 42 (2008)
Issue (Month): 9 (November)
Pages: 1220-1230

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Handle: RePEc:eee:transa:v:42:y:2008:i:9:p:1220-1230
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  1. Parry, Ian W.H. & Bento, Antonio Miguel R., 1999. "Revenue recycling and the welfare effects of road pricing," Policy Research Working Paper Series 2253, The World Bank.
  2. Kurt Van Dender, 2003. "Transport Taxes with Multiple Trip Purposes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(2), pages 295-310, 06.
  3. Richard Arnott, 2001. "The Economic Theory of Urban Traffic Congestion: A Microscopic Research Agenda," Boston College Working Papers in Economics 502, Boston College Department of Economics.
  4. De Borger, Bruno & Wouters, Sandra, 1998. "Transport externalities and optimal pricing and supply decisions in urban transportation: a simulation analysis for Belgium," Regional Science and Urban Economics, Elsevier, vol. 28(2), pages 163-197, March.
  5. Parry, Ian W.H. & Small, Kenneth, 2007. "Should Urban Transit Subsidies Be Reduced?," Discussion Papers dp-07-38, Resources For the Future.
  6. Mayeres, Inge & Proost, Stef, 2001. "Marginal tax reform, externalities and income distribution," Journal of Public Economics, Elsevier, vol. 79(2), pages 343-363, February.
  7. Mayeres, Inge & Proost, Stef, 1997. " Optimal Tax and Public Investment Rules for Congestion Type of Externalities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 261-79, June.
  8. Kraus, Marvin, 1991. "Discomfort externalities and marginal cost transit fares," Journal of Urban Economics, Elsevier, vol. 29(2), pages 249-259, March.
  9. Proost, Stef & Van Dender, Kurt, 2001. "The welfare impacts of alternative policies to address atmospheric pollution in urban road transport," Regional Science and Urban Economics, Elsevier, vol. 31(4), pages 383-411, July.
  10. De Witte, Astrid & Macharis, Cathy & Lannoy, Pierre & Polain, Céline & Steenberghen, Thérèse & Van de Walle, Stefaan, 2006. "The impact of "free" public transport: The case of Brussels," Transportation Research Part A: Policy and Practice, Elsevier, vol. 40(8), pages 671-689, October.
  11. Mohring, Herbert, 1972. "Optimization and Scale Economies in Urban Bus Transportation," American Economic Review, American Economic Association, vol. 62(4), pages 591-604, September.
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