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The Case for Subsidisation of Urban Public Transport and the Mohring Effect


  • Leonardo J. Basso
  • Sergio R. Jara-Díaz


In this journal, van Reeven (2008) develops a model aimed at showing that scale economies on users' time costs would not provide a justification for public transport subsidies. He claims that a profit-maximising operator allowed to take the demand effects of its pricing into account would offer a frequency f π at least as high as a welfare-maximising one f*, and with no welfare losses. We show that his result depends crucially on a strong assumption of demand. Introducing a slight modification to make it more realistic, we show: (i) f* > f π , (ii) welfare losses emerge under profit-maximisation, (iii) subsidies are required for first-best operation. Thus, the Mohring effect is a valid argument for subsidisation. © 2010 LSE and the University of Bath

Suggested Citation

  • Leonardo J. Basso & Sergio R. Jara-Díaz, 2010. "The Case for Subsidisation of Urban Public Transport and the Mohring Effect," Journal of Transport Economics and Policy, University of Bath, vol. 44(3), pages 365-372, September.
  • Handle: RePEc:tpe:jtecpo:v:44:y:2010:i:3:p:365-372

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    Cited by:

    1. Zhang, Fangni & Yang, Hai & Liu, Wei, 2014. "The Downs–Thomson Paradox with responsive transit service," Transportation Research Part A: Policy and Practice, Elsevier, vol. 70(C), pages 244-263.
    2. Bar-Yosef, Asaf & Martens, Karel & Benenson, Itzhak, 2013. "A model of the vicious cycle of a bus line," Transportation Research Part B: Methodological, Elsevier, vol. 54(C), pages 37-50.
    3. Rojo, Marta & dell’Olio, Luigi & Gonzalo-Orden, Hernán & Ibeas, Ángel, 2015. "Inclusion of quality criteria in public bus service contracts in metropolitan areas," Transport Policy, Elsevier, vol. 42(C), pages 52-63.
    4. repec:ris:revlde:1938 is not listed on IDEAS
    5. Börjesson, Maria & Fung, Chau Man & Proost, Stef & Yan, Zifei, 2018. "Do small cities need more public transport subsidies than big cities?," Working papers in Transport Economics 2018:5, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    6. Ljungberg, Anders, 2016. "Marginal cost-pricing in the Swedish transport sector – An efficient and sustainable way of funding local and regional public transport in the future?," Research in Transportation Economics, Elsevier, vol. 59(C), pages 159-166.
    7. Sun, Yanshuo & Guo, Qianwen & Schonfeld, Paul & Li, Zhongfei, 2016. "Implications of the cost of public funds in public transit subsidization and regulation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 91(C), pages 236-250.
    8. Andrés Gómez-Lobo, 2011. "Monopoly, subsidies and the Mohring effect: A synthesis and an extension," Working Papers wp336, University of Chile, Department of Economics.
    9. repec:eee:transb:v:104:y:2017:i:c:p:733-756 is not listed on IDEAS

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