Travel distance and optimal transport policy
A theoretical model is adopted in order to discuss optimal fare and optimal quality of supply schemes for a transport operator. The analysis shows how fare and quality of supply are related to travel distance and to the transport operator's emphasis on profit versus consumer surplus. Under reasonable assumptions imposed on the actual functions we find that the more weight the operator attaches to profit, the higher the fare level and the higher the generalised travel costs. How the operator's objectives influence the quality of transport and perhaps more surprisingly how travelling distance influences fares, quality of transport and generalised travel costs, are ambiguous with relation to the starting restrictions placed on the actual functions. The paper then discusses the special case in which the quality of transport is exogenous to the transport operator. One important result is that higher demands set to the transport operator regarding the quality of the transport supply do not necessarily reduce the transport users' generalised travel costs. Some of the model's results are commented in the light of empirical studies from Norway.
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Volume (Year): 38 (2004)
Issue (Month): 5 (June)
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- Lewis, Tracy R & Sappington, David E M, 1988. "Regulating a Monopolist with Unknown Demand," American Economic Review, American Economic Association, vol. 78(5), pages 986-98, December.
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- Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
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- A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
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