The development of urban bus regulatory policy in Korea reviewed

The urban bus industry in Korea used to be controlled to provide stable transport services and enable operators to secure proper profits, but there were adverse effects within the industry such as inadequate business management and a downward spiral of low quality services resulting from lower fares. The government began easing restrictions on entry, operation, fares, and some conditions and procedures for licensing in the late 1980s, until in 1993, the government published a package of deregulatory measures that were considerably more drastic than those previously seen, such as freely adjusting the number of vehicles within 10%, easing the restrictions and requirements for operators’ employing staff and drivers, and improving the fare system. However, these measures seem to have been introduced too late and too luke‐warmly to encourage new entrants to the industry. Therefore, to gain the desirable effects of deregulation and to secure the development of the urban bus sector, there needs to be provision of a market atmosphere and greater scope for free competition; a positive attitude among operators for efficient business management and new services; and alert observation and monitoring by passengers.     

Optimal transit subsidy policy

The basic justification for transit subsidy is that such a subsidy is necessary, given substantial economies of scale, in order to permit fares to be set at a level which will result in reasonably efficient use of the service. Efficiency is not, however, merely a matter of the level of the fares but even more of the fare structure and pattern. Major changes in fare patterns are needed to permit reasonable efficiency of utilization to be attained, and full advantage derived from subsidy. Differentiation according to time and direction, as well as the distance of travel, is required. Ideally, competing modes such as the private automobile should be priced at marginal cost, differentially by time and place, and the subsidy should be derived from taxes on land values in the areas where such values are enhanced by the presence of transit service at low fares. In the absence of such conditions, fares should differ from marginal cost in ways that take into account the impacts of transit fare variations on auto traffic and congestion, and on the subsidy requirements and the adverse impacts of the taxes imposed to finance the subsidy.In addition to these economic efficiency considerations there may be added considerations of distributional impact and political acceptability, which may modify the optimal solution somewhat but should not greatly change the main outlines of the patterns to be recommended.     

Performance-based quality contracts in bus service provision

Institutional reform of the bus sector is a topical discussion item in a number of countries at present. A specific focus is on ensuring a value for money (VM) regime to identify the benefits to society associated with each dollar of subsidy support from government. This paper promotes the position that a performance-based contracting (PBC) regime offers the best prospects of achieving a system-wide VM outcome. It proposes a reward system for bus operators that combines payment for delivering a minimum level of service (MSL), that meets government community service obligations, plus an incentive regime that rewards operators for patronage increases (above MSL patronage levels). The patronage incentive is based on expected user and external benefits deriving from service improvements and patronage increases. Cost benchmarking at relevant best practice levels is proposed as essential to ensure remuneration is based on efficient cost levels. The paper argues that a PBC approach is consistent with maximising social surplus from public transport provision across a geographic area, for any given budget constraint and regulatory imposed minimum service levels. The main alternative, competitive tendering (CT), is argued to be less attractive than PBCs in terms of securing the maximum social surplus to the community, given the total amount of subsidy support available, although CT is an appropriate non-compliance condition. This paper is a companion to Hensher and Houghton [Hensher, D.A., Houghton, E., Performance-based contracts for the bus sector: delivering social and commercial value for money, Trans. Res. B, in press] that details the economic framework and an application of PBCs.     

A survey of the Swiss public transport system and policy

This paper surveys Swiss public transport structure and policy. The regulatory regime is explained with the division between the two operators working under federal monopoly — the State railways (SBB) and the postbuses (PTT) — and the rest of the system. The rather complicated Swiss subsidy arrangements are described. The federal government's emphasis on introducing cheap public transport fares on environmental grounds through the federal transport measures (BTM) and the use of cheap fares in urban areas are discussed. The paper notes the Swiss people's rejection by a referendum of a federal commission's proposal for an integrated transport policy, though some of the solutions were introduced in their own right: the division of SBB into two parts, and the creation of the concept Rail 2000, later developed into Rail + Bus 2000. Finally, the paper reviews problems of the Swiss policy, including the future of cheap fares, making some comparisons with developments in Scandinavia.     

Incentive subsidy scheme design with elastic transport demand

Huge public transport subsidies caused by deficits have become a heavy financial burden on some local governments due to the decline of bus passenger numbers. It is essential to apply the performance‐based contract to bus services considering maximization of social welfare. This paper constructs an incentive subsidy contract considering the decision‐making powers of the service level and calculating the proper frequency elasticity aiming at two problems of performance‐based contracts. Meanwhile, we consider a role of bus operators ignored by most researchers. Under the scheme, the decision‐making power of the service level is discussed based on five assumptions, and meanwhile, bus operators are motivated to reduce cost and improve service level in the scheme. The case of the bus service of Arao city indicates that the optimal frequency equals to zero when bus operators decide frequency. If bus operators determine efforts, the optimal effort also equals to zero with the goal of maximizing the profit. Also, bus operators can play their roles in lessening cost and improving service level to help bus operators and the local government achieve a win‐win situation, which maximizes the social benefit in this subsidy scheme when all factors are decided by the government. Copyright © 2013 John Wiley & Sons, Ltd.     

Impact of congestion charging on the transit market: An inter-modal equilibrium model

An inter-modal equilibrium model links an urban road network subject to a congestion charge to a parallel urban transit market, with a view to finding the optimum congestion charge consistent with the commercial decisions of the transit operator(s). A congestion charge is set to maximise social surplus. Travel behaviour is assumed to conform to elastic-demand user equilibrium traffic assignment. The transit market is assumed to be either a profit maximising monopoly or a profit maximising duopoly competing non-cooperatively. The operator(s) set the fares to maximise profits and the supply of transit services are determined by the resulting demand. The problem has been formulated as a bi-level programme with the determination of the congestion charge on the upper level and the setting of transit fares on the lower level. In the case of non-cooperating operators, the Bertrand–Nash equilibrium fares are sought. The results of the model are analysed for a small example based loosely on Edinburgh. This reveals the importance of competition in the transit market for the trade off between the government, the transit provider(s) and the travellers.     

The net incidence of transit subsidies: a case study

The purpose of this paper is to investigate the net incidence of government subsidies to a transit system (i.e., the net impact of who pays and who benefits from transit subsidies). Rather than considering the U.S. transit subsidy program in the aggregate, the net incidence of subsidies to a particular transit system — Tidewater Regional Transit (TRT) — is analyzed. The paper concludes that the net incidence of the TRT subsidy program is progressive. Furthermore, the paper provides a methodology that can be used for investigating the net incidence of government subsidies to other transit systems.     

Relationships between fares, trip length and market competition

This paper analyses equilibrium fares that arise from Collusion, Cournot, Stackelberg, Bertrand and Sequential Price Competition when two profit maximising transport firms produce symmetrically differentiable services and have identical costs. Special focus is placed on how different equilibrium fares are linked to trip length. Higher operator costs and higher demand from the authorities regarding the quality of transport supply result in steeper relationships (larger rate of change) between all fares and travel distance. Also, a higher degree of substitutability between the services will in most cases make these relationships steeper. The competitive situation has less influence on fares, both absolutely and relatively, the longer routes the operators compete on.     

Welfare maximization for bus transit systems with timed transfers and financial constraints

Conventional and flexible bus services may be combined to better serve regions with a wide range of characteristics. If demand densities and resulting service frequencies are low, the coordination of bus arrivals at transfer stations may significantly reduce passenger transfer times. A method is proposed for integrating, coordinating, and optimizing bus services while considering many‐to‐many travel patterns, demand elasticity, financial constraints, and appropriate service type for various regions. The objective is to maximize welfare, that is, the sum of producer and consumer surplus. The problem is solved with a hybrid optimization method, in which a genetic algorithm with bounded integer variables is selected for solving one of the subproblems. The service types, fares, headways, and service zone sizes are jointly optimized. Sensitivity analyses explore how the choice among conventional and flexible busses depends on the demand, subsidy, and demand elasticity parameters. The results also show that welfare can increase due to coordination, and these increases are found to be higher in cases with high demand or low subsidy. Copyright © 2015 John Wiley & Sons, Ltd.     

An optimization model for integrated transit-parking policy planning

The optimization model proposed in this paper is aimed to assist city councils (or other transport authorities) in the planning of integrated transit-parking policies. The objective is to minimize the joint operating deficit of the transit and parking operators while ensuring given minimum levels of (motorized) mobility in a city. The key decision variables are transit fares and parking fees. The impact of price changes on transit and car modal shares are described by logit functions of the generalized travel costs. The practical utility of the model is illustrated with a case study involving a midsize city in Portugal.

     

Optimal transport strategies for European cities

A new procedure for generating optimal transport strategies has been applied in nine European cities. A public sector objective function which reflects concerns over efficiency, environmental impact, finance and sustainability is specified and a set of policy measures with acceptable ranges on each, identified. Optimal strategies based on combinations of these policy measures which generate the optimal value of the objective function, are identified, and compared between cities. Resulting policy recommendations are presented. The results demonstrate the importance of an integrated approach to transport strategy formulation. They emphasise the role of changes in public transport service levels and of fares, and of charges for car use. By contrast, new infrastructure projects are less frequently justified. In the majority of cities the revenues from car use charges are sufficient to finance other elements in the strategy. However, private sector involvement either in initial financing or in operation may be desirable. Revised objective functions to reflect private sector involvement are specified, and optimal strategies with private sector operation of public transport are also identified. The requirement to meet private sector rates of return for public transport operation typically results in lower frequencies and higher fares; charges for car use then need to be raised to satisfy public policy objectives, but system performance is reduced. This revised version was published online in June 2006 with corrections to the Cover Date.     

Subsidizing and pricing private toll roads with noncontractible service quality: A relational contract approach

In private toll roads, some elements of the private operator’s performance are noncontractible. As a result, the government cannot motivate the private operator to improve them through a formal contract but through a self-enforcing contract that both parties are unwilling to deviate unilaterally. In this paper, we use noncontractible service quality to capture these performance elements. By employing a relational contract approach, we aim to investigate the optimal subsidy plan to provide incentives for quality improvement. We show that government subsidy is feasible in quality improvement when the discount factor is sufficiently high and marginal cost of public funds is sufficiently small. Under feasible government subsidy, we have demonstrated the optimal subsidy plans in different scenarios. Moreover, some comparative statics are presented. Based on the derived subsidy plans, we further investigate the optimal toll price. We find that the optimal toll price generates zero surplus for the private operator and positive surplus for consumers. We then make two extensions of our model to re-investigate the government’s optimal decisions on subsidy plan and toll price when her decision sequence is changed and when government compensation is present upon termination of the relationship. Some implications for practice have been derived from our model results.     

Effects of subsidies on urban public transport

Because of a general trend of increasing costs of public transport operations and higher subsidies (in some cases accompanied by falling patronage) the European Conference of Ministers of Transport (ECMT) initiated a study of subsidisation and sought the help of the Transport and Road Research Laboratory. The study, in which eighteen countries took part, was concerned with the aims of subsidy, the sources and conditions attached to subsidy, trends in subsidies and the effect of subsidies on patronage, fares, service levels, costs and productivity.The qualitative information concerning the aims of subsidy was analysed in relation to the likelihood of achieving such aims, taking into account current experience of attempts to switch car drivers to public transport. The quantitative information on trends referred to public transport stage services covering where possible the entire country and relating to the period 1965–77; these data were supplemented by data from 59 cities in different parts of the world collected in the course of a TRRL-sponsored study of travel demand factors. The relationship between patronage and service levels, and between subsidies and various operating factors, including costs and productivity, were studied using regression analysis and the general conclusion reached was that although the major part of the subsidy paid was reflected by reduced fares and improved service levels there may well have been some leakage into higher unit costs and manning levels.     

Integrating intermodal transport with logistics: a case study of the UK retail sector

Retail traffic is one of the main drivers for the growth of intermodal transport services in the UK. This paper examines the key factors underpinning this modal shift in order to learn lessons for other market and geographical contexts. Since successful retail intermodal logistics involves many actors, this paper is based on semi-structured interviews with major UK retailers, third-party logistics providers (3PLs) and rail operators, supplemented by document analysis. The qualitative data are analysed via a conceptual framework derived from the literature. Despite past successes and the presence of drivers for future growth, the paper identifies many operational issues without current solutions and the presence of ongoing public subsidy. The major conclusion is that the importance of 3PLs, aggregation and multi-user platforms must be recognised by transport planners in supporting the use of intermodal transport by retailers and other large shippers.     

Time‐of‐day transit pricing: comparative US and international experiences

Experiences with time‐of‐day transit pricing in the U.S. are reviewed in this article and compared to those in other countries. Emphasis is placed on examining ridership, financial and efficiency impacts associated with time‐of‐day pricing, along with highlighting innovative approaches to implementing fare differentials. American time‐of‐day fare structures have been about evenly split between off‐peak discounts, peak‐period surcharges, and programmes involving differential rates of fare increases between peak and off‐peak hours. Although most American operators introduced time‐of‐day differentials to encourage ridership shifts to the off‐peak period, available evidence suggests that they have been only marginally successful in doing so. Off‐peak users were generally found to be far more fare‐sensitive to discounts than peak passengers were to surcharges. Only in a handful of American cities were significant efficiency and financial benefits from time‐of‐day pricing recorded, though in those few places, they tended to be substantial. The most successful American programmes have been those which collect fares on the basis of bus runs and direction of trips (rather than the exact time) and which aggressively market their programmes under the aegis of ‘bargain fares’. It is concluded that useful lessons can be gained by sharing policy insights from experiments with differential transit pricing in both the US and elsewhere.     

The economics of parking provision for the morning commute

In this paper, we study the economics of parking provision for the morning commute, where all the parking lots are owned and operated by private operators. The parking capacity allocations, parking fees and access times are considered in a parking market. First we solve the parking market equilibrium without regulatory intervention, revealing four types of competitive equilibrium. Only one of the four types of equilibrium, however, is found to be stable and realistic, and under it each parking area is preferred by the commuters during certain time periods. Compared to the case without parking choice, provision of parking through a competitive market is able to reduce commuters’ travel cost and queuing delay, but it does not necessarily lead to the most desirable market outcome that minimizes social cost or commuter cost. This issue can be addressed through market regulations, such as price-ceiling, capacity-floor or capacity-ceiling, and a quantity tax/subsidy regulation. It is found that both price-ceiling and quantity tax/subsidy regulations can efficiently reduce both the system cost and commuter cost under certain conditions, and help ensure the stability of the parking market. Numerical examples are also provided to illustrate these findings and furthermore, how a price ceiling or a quantity tax/subsidy should be set in a parking market under realistic model parameters.     

Direct to your destination: the size,scope and competitive status of express coach carriers in the United States

The advent of express coach bus lines offering guaranteed seating and emphasizing curbside pickup and drop-off is contributing to a revival in intercity bus travel in the United States. Relatively little is known, however, about the scale and geographic scope of these carriers or the competitive landscape in which they operate. To fill this void, this study evaluates the service networks operated by the two largest express coach operators in the country, BoltBus and Megabus, and evaluates a data set of 4775 fares sold on megabus.com. The results show that these carriers cumulatively serve 127 intercity segments and operate about 52.9 million bus miles per year. Together, these carriers have grown to about one third of the size of Amtrak, with Megabus and BoltBus providing 3.3 billion and .69 billion seat miles of service, respectively, compared to Amtrak’s 12.8 billion. With respect to the types of routes it serves and the competition it faces, Megabus has evolved into a carrier quite different than Boltbus; more than one third of Megabus’ bus miles are operated on segments without Amtrak service, while virtually all of BoltBus’ miles face this competition. The analysis of Megabus’ pricing shows that fares rise modestly within 2 weeks of departure, while the per-mile costs are much less ($.08/mile) for 300–399 mile trips than for those 50–99 miles ($.22/mile). Nevertheless, the dispersion of fares tends to fall as the departure date nears, regardless of distance. Together, these prominent bus lines serve 66 of the 100 most heavily traveled U.S. city pairs that have characteristics suitable for intercity bus service—which is more than Amtrak. With further growth on the horizon, planners, federal regulators, and researchers should collaborate on establishing reporting requirements for this expanding sector.

     

Net tax incidence for urban public transit subsidies in New Zealand

This paper examines the impact of policy changes in the funding of New Zealand public transit modes.These changes, introduced in 1983, are evaluated in terms of the net incidence of public transit subsidy assistance, taking into account its source of funding and the income class of those commuters benefiting from the subsidy. The general conclusion is that the net incidence of subsidy assistance remains progressive (i.e., a transfer from high to low income commuters) following the introduction of shared funding on the predominant public transit modes (rail and bus), sourced from income tax (central government) and property tax (regional/local government). However, because of the predominance of medium to high income commuters on rail vis-a-vis bus and the traditional source of funding on these modes in terms of income tax (a progressive tax source) and property tax (a regressive tax source), the degree of progressivity previously associated with public transit subsidies has now substantially reduced.The analysis and opinions expressed in this paper are the responsibility of the author alone and do not purport to represent the views of the Ministry of Transport.     

Evaluation of Rail Freight Facilities Grant Funding in Britain

Abstract

Rail freight has been generally in decline in many European Union countries in recent years, contrary to European transport policy. State support for railway operations is commonplace in most countries, and this paper establishes the background to targeted rail freight grant funding in Britain. Through desk‐based analysis of Freight Facilities Grant (FFG) awards, together with a survey of recipient companies, the paper assesses the extent to which the planned flows expected from these awards have materialized and it evaluates the role of the grants in influencing rail freight volumes. The evidence suggests that FFG funding has been largely successful, attracting considerable private sector investment. Overall, FFGs have played an important role in developing or retaining rail freight flows, although the processes could be made more transparent and consistent. As other European countries liberalize their rail freight markets as a result of European Union legislation, such targeted funding may be an appropriate alternative to more general government subsidy of freight operations.     

Competition and regulation in a new integrated transit system across jurisdictional borders

It is often argued lately that some regional transit systems should be integrated to improve the transit services across jurisdictional borders. One of the important issues concerning this integrated transit system is how to make proper use of the competition and regulation to improve its performance and to increase relevant benefits to the authorities, the operators and the passengers. This paper deals with this problem in a new integrated transit system across jurisdictional borders. An optimization model is used to investigate the competition of transit operators in oligopolistic competition transit market (OCTM). An optimization model with nonlinear complementarity constraints is proposed to guide the competition of transit operators using transit subsidy as the regulation means in system optimum transit system (SOTM). By analyzing and comparing the performances of the integrated transit system in two markets, numerical studies show that the competition mechanism should be made full use of and transit subsidy is an important regulation means that should be valued by the transit authorities in the integrated transit system. Copyright © 2016 John Wiley & Sons, Ltd.