The Case for Subsidisation of Urban Public Transport and the Mohring Effect
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
Volume (Year): 44 (2010)
Issue (Month): 3 (September)
|Contact details of provider:|| Web page: http://www.bath.ac.uk/e-journals/jtep|
When requesting a correction, please mention this item's handle: RePEc:tpe:jtecpo:v:44:y:2010:i:3:p:365-372. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.