IDEAS home Printed from https://ideas.repec.org/p/ete/ceswps/ces14.18.html
   My bibliography  Save this paper

The political economy of public transport pricing and supply decisions

Author

Listed:
  • Bruno DE BORGER
  • Stefan PROOST

Abstract

This paper studies the political economy of public transport pricing and quality decisions in urban areas. We consider a hypothetical two-region federation. In each region there is a demand for public transport and for car use, and the group mainly using public transport may be a majority or minority in the region; moreover, part of the users of both the public transport system and the road network may come from outside the region. In this setting, we compare regional and federal decision making on public transport fares and supply characteristics. Under regional decision-making we find that, first, the political process may result in very low public transport fares, even if car owners are a large majority of the population. The fare preferred by car owners is increasing in the toll on car use. Cost recovery always improves with the share of outside users. Second, imposing a zero deficit constraint on regional public transport operators implements the second-best welfare optimum, independent of whether car owners or non-car owners have the political majority. Third, compared to centralized decision making, decentralized decision making leads to higher fares and better cost recovery. Our findings are consistent with the lack of opposition to very large public transport subsidies in Europe, and they provide a potential explanation for the tendency towards decentralization of public transport policy-making observed in many countries over the last decades.

Suggested Citation

  • Bruno DE BORGER & Stefan PROOST, 2014. "The political economy of public transport pricing and supply decisions," Working Papers Department of Economics ces14.18, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces14.18
    as

    Download full text from publisher

    File URL: https://lirias.kuleuven.be/bitstream/123456789/457119/1/DPS1418.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Brueckner, Jan K. & Selod, Harris, 2006. "The political economy of urban transport-system choice," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 983-1005, August.
    2. Amihai GLAZER & Stef PROOST, 2010. "Reducing rent seeking by providing wide public service," Working Papers Department of Economics ces10.31, KU Leuven, Faculty of Economics and Business, Department of Economics.
    3. Ben Lockwood, 2002. "Distributive Politics and the Costs of Centralization," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 313-337.
    4. De Borger, Bruno & Fosgerau, Mogens, 2012. "Information provision by regulated public transport companies," Transportation Research Part B: Methodological, Elsevier, vol. 46(4), pages 492-510.
    5. Tirachini, Alejandro & Hensher, David A. & Jara-Díaz, Sergio R., 2010. "Restating modal investment priority with an improved model for public transport analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(6), pages 1148-1168, November.
    6. Mohring, Herbert, 1972. "Optimization and Scale Economies in Urban Bus Transportation," American Economic Review, American Economic Association, vol. 62(4), pages 591-604, September.
    7. Ian W. H. Parry & Kenneth A. Small, 2009. "Should Urban Transit Subsidies Be Reduced?," American Economic Review, American Economic Association, vol. 99(3), pages 700-724, June.
    8. De Borger, Bruno & Dunkerley, Fay & Proost, Stef, 2009. "Capacity cost structure, welfare and cost recovery: Are transport infrastructures with high fixed costs a handicap?," Transportation Research Part B: Methodological, Elsevier, vol. 43(5), pages 506-521, June.
    9. Philippe Gagnepain & Marc Ivaldi & David Martimort, 2013. "The Cost of Contract Renegotiation: Evidence from the Local Public Sector," American Economic Review, American Economic Association, vol. 103(6), pages 2352-2383, October.
    10. Toon Vandyck & Stef Proost, 2012. "Inefficiencies in regional commuting policy," Papers in Regional Science, Wiley Blackwell, vol. 91(3), pages 659-689, August.
    11. De Borger, Bruno & Proost, Stef, 2012. "A political economy model of road pricing," Journal of Urban Economics, Elsevier, vol. 71(1), pages 79-92.
    12. Kraus, Marvin, 1991. "Discomfort externalities and marginal cost transit fares," Journal of Urban Economics, Elsevier, vol. 29(2), pages 249-259, March.
    13. Aisling J. Reynolds-Feighan & Joan Durkan & Joe Durkan, 2000. "Comparison of subvention levels for public transport systems in European cities," Open Access publications 10197/124, School of Economics, University College Dublin.
    14. William Roy & Anne Yvrande-Billon, 2007. "Ownership, Contractual Practices and Technical Efficiency: The Case of Urban Public Transport in France," Journal of Transport Economics and Policy, University of Bath, vol. 41(2), pages 257-282, May.
    15. Bruno Borger & Stef Proost, 2016. "The political economy of pricing and capacity decisions for congestible local public goods in a federal state," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 934-959, October.
    16. de Palma, André & Kilani, Moez & Proost, Stef, 2015. "Discomfort in mass transit and its implication for scheduling and pricing," Transportation Research Part B: Methodological, Elsevier, vol. 71(C), pages 1-18.
    17. de Palma, André & Lindsey, Robin, 2007. "Chapter 2 Transport user charges and cost recovery," Research in Transportation Economics, Elsevier, vol. 19(1), pages 29-57, January.
    18. Kilani, Moez & Proost, Stef & van der Loo, Saskia, 2014. "Road pricing and public transport pricing reform in Paris: Complements or substitutes?," Economics of Transportation, Elsevier, vol. 3(2), pages 175-187.
    19. Proost, Stef & Dender, Kurt Van, 2008. "Optimal urban transport pricing in the presence of congestion, economies of density and costly public funds," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(9), pages 1220-1230, November.
    20. Glaeser, Edward L. & Kahn, Matthew E. & Rappaport, Jordan, 2008. "Why do the poor live in cities The role of public transportation," Journal of Urban Economics, Elsevier, vol. 63(1), pages 1-24, January.
    21. Savage, Ian, 2010. "The dynamics of fare and frequency choice in urban transit," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(10), pages 815-829, December.
    22. Borck, Rainald & Wrede, Matthias, 2008. "Commuting subsidies with two transport modes," Journal of Urban Economics, Elsevier, vol. 63(3), pages 841-848, May.
    23. B. De Borger & K. Kerstens, 2006. "The performance of bus-transit operators," Post-Print hal-00185456, HAL.
    24. van Goeverden, Cees & Rietveld, Piet & Koelemeijer, Jorine & Peeters, Paul, 2006. "Subsidies in public transport," European Transport \ Trasporti Europei, ISTIEE, Institute for the Study of Transport within the European Economic Integration, issue 32, pages 5-25.
    25. William Roy & Anne Yvrande-Billon, 2007. "Ownership, Contractual Practices and Technical Efficiency: The Case of Urban Public Transport in France," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00107375, HAL.
    26. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
    27. Sergio Jara-Díaz & Antonio Gschwender, 2003. "Towards a general microeconomic model for the operation of public transport," Transport Reviews, Taylor & Francis Journals, vol. 23(4), pages 453-469, July.
    28. Hansjörg Blöchliger, 2008. "Market Mechanisms in Public Service Provision," OECD Economics Department Working Papers 626, OECD Publishing.
    29. Arnott, Richard & Grieson, Ronald E., 1981. "Optimal fiscal policy for a state or local government," Journal of Urban Economics, Elsevier, vol. 9(1), pages 23-48, January.
    30. Wang, Rui, 2011. "Autos, transit and bicycles: Comparing the costs in large Chinese cities," Transport Policy, Elsevier, vol. 18(1), pages 139-146, January.
    31. Ross Hickey, 2013. "Bicameral bargaining and federation formation," Public Choice, Springer, vol. 154(3), pages 217-241, March.
    32. repec:hal:cesptp:hal-00710639 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Börjesson, Maria & Fung, Chau Man & Proost, Stef, 2017. "Optimal prices and frequencies for buses in Stockholm," Economics of Transportation, Elsevier, vol. 9(C), pages 20-36.
    2. Fung, Chau Man & Proost, Stef, 2017. "Can we decentralize transport taxes and infrastructure supply?," Economics of Transportation, Elsevier, vol. 9(C), pages 1-19.
    3. repec:eee:ecotra:v:13:y:2018:i:c:p:36-47 is not listed on IDEAS
    4. repec:eee:transa:v:111:y:2018:i:c:p:326-346 is not listed on IDEAS
    5. repec:eee:transe:v:109:y:2018:i:c:p:277-292 is not listed on IDEAS
    6. repec:eee:transa:v:108:y:2018:i:c:p:45-62 is not listed on IDEAS

    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ete:ceswps:ces14.18. 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: (library EBIB). General contact details of provider: http://feb.kuleuven.be/Economics/ .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.