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.     

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.     

The effects of federal transit subsidy policy on investment decisions: The case of San Francisco's Geary Corridor

In the United States, federal funding for public transit often accounts for a large proportion of a local agency's budget, especially for capital investments. For this reason, local governments can be expected to plan a portfolio of projects that maximize federal contributions. This study examines the financial effects of federal transit subsidy policy on local transit investment decisions. Data from a System Planning Study for the Geary Corridor in San Francisco are used as an illustration. It is found that federal transit subsidy policy provides financial incentives for local decision-makers to select capital-intensive investment options that may not be efficient or effective. While federal financial incentives are not the only factor influencing local investment decisions, some reform of the current subsidy policy may be necessary to reduce the incentive for ineffective use of public resources.     

Subsidy and public transit performance: A factor analytic approach

The need to measure and evaluate transit system performance has led to the development of numerous performance indicators. However, depending upon the indicator, we oftentimes reach different conclusions regarding transit system performance. The research reported in this paper uses factor analytic methods to generate a set of underlying attributes (factors) that capture the performance of public transit systems in Indiana. Similar to what is reported in the literature, this study finds three attributes that best describe transit system performance: efficiency, effectiveness, and overall performance. Based upon systemsÕ factor scores, the study finds that systems scoring highly on one attribute generally perform well on the remaining attributes. Further, there is an inverse relationship between system performance and subsidies, a finding that supports performance based subsidy allocations.     

Transit subsidies and regulation: Lessons from the Israeli experience

The Israeli transport sector, like those of many other countries is subject to complete government control with regard to fares, entry into the market, terms of operation and subsidies. It is unique, however, in that the fares charged are remarkably low and that the major transit mode, buses, is operated by privately owned companies. This paper explores what makes this low level of fares possible and in doing so examines the principal characteristics of the sector. It shows that this phenomenon cannot be explained by the amount of subsidy given to the operators but must be attributed to other factors, mainly the efficiency in the production of the services which is motivated by the profit maximization objective of the operators. The paper further argues that government policies regarding subsidy and regulation are generally inefficient as they cause misallocation of resources.     

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.     

On incentives and optimal effort to improve bus transit performance

ABSTRACT

This paper studies incentive-based subsidy to transit systems to improve performance. It derives a formula for optimal effort that equalizes marginal cost and marginal benefit and derives some principles from it among which is that the larger the value of a transit system’s performance criterion the larger the effort it will exert to improve it. Next, using a constrained cost minimization approach it derives a nonlinear cost function that includes optimal effort and estimates it using an unbalanced panel data of single mode U.S. bus transit systems. The results show that optimal effort is the equivalent of seven full-time employees (15,243 labor hours) per year and in real terms it results in 0.6% cost saving (US$198,331) and US$836,796 in incentive subsidy per observation. The implications of these findings are examined.     

Short-term impact analysis of fuel price policy change on travel demand in Malaysian cities

Abstract

Malaysia is one of the few countries in the world that provides a fuel subsidy to consumers. Due to the recent economic crisis, the Malaysian Government decided to revise its fuel subsidization policy from a fixed price subsidy to a floating price subsidy dependent on global oil demand. Recognizing that the change in fuel subsidization policy can have an impact on travel behavior, this article investigates the short-term impact of the policy change on private and public transportation in the Klang Valley region of Malaysia. Spectral analyses are performed to investigate if the policy change has an impact on private vehicle travel demand, measured in terms of road traffic, and short-term travel demand elasticity with respect to fuel price is estimated. To measure the impact on the public transportation system, the demand cross-elasticity values of rail transit and buses are also estimated. It was found that traffic flow reduces with an increase in fuel price, although elasticity and cross-elasticity values obtained are low. The article finds that there is a potential mode shift from private vehicles to rail transit with increasing fuel price. It is demonstrated that reducing fuel price subsidy can be an effective travel demand management strategy to alleviate congestion.     

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.     

Who benefits from transit subsidies? recent evidence from six metropolitan areas

On the basis of detailed case studies of six U.S. metropolitan areas, this paper examines variations among cities in the income-redistributive impact of transit subsidies in 1980. The distribution of subsidies in each city is estimated through analysis of the socioeconomic characteristics of riders on each type of transit service and the degree to which each type of service was subsidized. The estimated distribution of the transit tax burden reflects the tax mix used for transit finance in each city as well as the composition of funding by level of government. The subsidy and tax cost distributions are compared to calculate the distribution of net subsidies in each area. Causes of the variation among cities in redistributive impact are discussed, and recommendations are made for increasing the progressivity of transit finance.     

The authors in this issue

This paper analyses the impacts on a particular region of a recent policy change regarding public transit subsidy in New Zealand, under which the contributions of local authorities are increased from 0 to 50% of net direct expenditures. The options open to the community are examined and their effects on regional income, future development and social equitability are analysed. It also illustrates the cost effectiveness of a natural monopoly under increased accountability.     

Nature and/or nurture? Analyzing the determinants of transit ridership across US urbanized areas

Public subsidy of transit services has increased dramatically in recent years, with little effect on overall ridership. Quite obviously, a clear understanding of the factors influencing transit ridership is central to decisions on investments in and the pricing and deployment of transit services. Yet the literature about the causes of transit use is quite spotty; most previous aggregate analyses of transit ridership have examined just one or a few systems, have not included many of the external, control variables thought to influence transit use, and have not addressed the simultaneous relationship between transit service supply and consumption. This study addresses each of these shortcomings by (1) conducting a cross-sectional analysis of transit use in 265 US urbanized areas, (2) testing dozens of variables measuring regional geography, metropolitan economy, population characteristics, auto/highway system characteristics, and transit system characteristics, and (3) constructing two-stage simultaneous equation regression models to account for simultaneity between transit service supply and consumption. We find that most of the variation in transit ridership among urbanized areas – in both absolute and relative terms – can be explained by factors outside of the control of public transit systems: (1) regional geography (specifically, area of urbanization, population, population density, and regional location in the US), (2) metropolitan economy (specifically, personal/household income), (3) population characteristics (specifically, the percent college students, recent immigrants, and Democratic voters in the population), and (4) auto/highway system characteristics (specifically, the percent carless households and non-transit/non-SOV trips, including commuting via carpools, walking, biking, etc.). While these external factors clearly go a long way toward determining the overall level of transit use in an urbanized area, we find that transit policies do make a significant difference. The observed range in both fares and service frequency in our sample could account for at least a doubling (or halving) of transit use in a given urbanized area. Controlling for the fact that public transit use is strongly correlated with urbanized area size, about 26% of the observed variance in per capita transit patronage across US urbanized areas is explained in the models presented here by service frequency and fare levels. The observed influence of these two factors is consistent with both the literature and intuition: frequent service draws passengers, and high fares drive them away.     

Heuristic policy analysis of regional land use,transit, and travel pricing scenarios using two urban models

To address some of the uncertainties inherent in large-scale models, two very different urban models, an advanced travel demand model and an integrated land use and transportation model, are applied to evaluate land use, transit, and auto pricing policies in the Sacramento, CA (US), region. The empirical and modeling literature is reviewed to identify effective land use, transit, and pricing policies and optimal combinations of those policies and to provide a comparative context for the results of the simulation. The study illustrates several advantages of this approach for addressing uncertainty in large-scale models. First, as Alonso [Predicting the best with imperfect data, AIP Journal (1968)] asserts, the intersection of two uncertain models produces more robust results than one grand model. Second, the process of operationalizing policy sets exemplifies the theoretical and structural differences in the models. Third, a comparison of the results from multiple models illustrates the implications of the respective models' strengths and weaknesses and may provide some insights into heuristic policy strategies. Some of the key findings in this study are (1) land use and transit policies may reduce vehicle miles traveled (VMT) and emissions by about 5–7%, and the addition of modest auto pricing policies may increase the reduction by about 4–6% compared to a future Base Case scenario for a 20-year time horizon; (2) development taxes and land subsidy policies may not be sufficient to generate effective transit-oriented land uses without strict growth controls elsewhere in the region; and (3) parking pricing should not be imposed in areas served by light rail lines and in areas in which increased densities are promoted with land subsidy policies.     

A procedure for estimating transit subsidization requirements for developing countries

The paper presents a procedure that has been developed for estimating subsidization requirements for urban transit services in developing countries. The procedure is based on a subsidization policy of reducing transport expenditure burden on the average commuter, by maintaining his transport expenditure-income ratio at a reasonable level. It is designed for both regulated and deregulated transport markets. It requires, as input, historical data (previous year) on fare, productivity, and load factor for the transport service or mode concerned, the transport expenditure-income ratio distribution of the commuters, and the current level of commuter personal transport allowance. It is based on the premise that transport expenditure-income ratio is inversely related to income. The subsidization formula developed in the paper yields a level of subsidy that is commensurate with the level of control a government is able to exercise over transit operations.     

Application of path analysis methodology to transit system maintenance performance

This paper develops a conceptual framework for bus maintenance based on path analysis and applies it to forty-eight bus transit systems. The application determines the total, direct, and indirect effects of the variables identified as having significant causal links with maintenance cost per mile. These variables are identified using the stepwise regression method. The findings are that the wage rate and fleet size increase maintenance cost directly and indirectly. In terms of the standardized regression coefficients, fleet size has been found to be the most important factor affecting maintenance cost per mile, followed by the proportion of articulated buses, the wage rate and local subsidy in that order. The proportion of articulated buses has been found to reduce maintenance cost per mile directly and to increase it indirectly. The indirect path coefficient of the proportion of articulated buses is 0.1794 whereas the direct path coefficient is –0.351. Similarly local subsidy as a proportion of revenue increases maintenance cost per mile directly and reduces it indirectly. The corresponding path coefficients for the direct and indirect effects of local subsidy are 0.2553 and –0.1073. In addition population density and the peak-base ratio are positively and significantly associated with miles between roadcalls. The implications of these findings are briefly examined in this paper. Because the path analysis methodology allows the direct and indirect effects of a causal variable to be determined, it is recommended for policy analysis.     

Estimating the inefficiency in the Norwegian bus industry from stochastic cost frontier models

A stochastic cost frontier function based on data from 170 of the 175 Norwegian subsidized bus companies is estimated under two alternative presumptions regarding the distribution of the inefficency among the bus operators. When the inefficiency is assumed to be half-normally distributed, the average inefficiency in the industry is estimated to be 13.7 per cent. This calculated value is nearly halved (7.2 per cent) when the exponential distribution is applied, while the ranking of the companies according to inefficiency is unchanged. By regressing the estimated inefficiency values for each company on some exogenous variables describing its ownership structure and the subsidy policy which it faces, it is seen that inefficiency of the companies which negotiate with the public authorities over the subsidy amounts is slightly higher than the inefficiency of the companies which face a subsidy policy based on cost norms. Our analysis gives, however, no significant differences in the efficiency between privately owned bus companies and publicly owned bus operators, and shows only minor economies of scale.     

Efficiency of the public and private bus transport sectors in Sri Lanka

The public and private bus sectors are in direct competition in most bus routes in Sri Lanka. Consequently, Sri Lanka is an ideal location to study their relative efficiencies. Five dimensions of transit performance are analyzed for comparing the relative efficiencies of the two sectors: cost efficiency, labour efficiency, input efficiency, revenue generation and safety. Productivity ratios are utilized for measuring the dimensions of transit performance. The productivity ratios for cost efficiency, labour efficiency in terms of total staff, input efficiency, revenue generation and safety in terms of accidents per bus showed the private bus transport sector to be more efficient than the public bus transport sector.     

The taxi's role in urban America: Today and tomorrow

Changes in the economic and demographic characteristics of US cities over the past two decades have modified but have not diminished the need for extensive public transportation service in these areas. The vast bulk of trips to work, to shop, and for most other purposes within large American cities are still made by residents of those cities, a significant portion of whom do not own or have access to an automobile. Expensive and far-ranging programs to enhance surburban commutation to the central city by means of rail rapid transit do little to meet the needs of those who still must rely upon local, extensive service within the city.One form of public transport — the taxicab — offers the quality and flexibility of service which even those of limited means find well worth the price. As a consequence, fleet taxicabs serve almost 40 percent more passengers than all US rapid transit systems and about 60 percent as many passengers as all bus transit systems. Removal of archaic and restrictive regulations governing the number and use of taxicabs in major US cities would promote more effective and widespread use of this, the only form of public transit that still operates — at a profit — without public subsidy.     

Implications of the cost of public funds in public transit subsidization and regulation

This paper identifies some implications of the cost of public funds (CF) in public transit subsidization and regulation. Regulation is considered because a monopolistic operator is assumed. A social welfare maximization model is proposed, subject to individual rationality and vehicle capacity constraints. Optimality conditions are provided and a key formula is derived about CF’s role in balancing the need to cover the fixed operation cost through fares on the operator’s side and the effort to maintain the user surplus on the passengers’ side. Major findings from this model’s formulation include: (1) CF determines the extent to which the passengers’ surplus is compromised in order to cover the fixed part of the operating cost, and (2) subsidy is unjustified when CF exceeds the critical shadow price of the financial constraint. Analytical relations are illustrated through numerical examples.     

Investigating transit production and performance: a programming approach

Although efficiency and productivity are closely related issues, they have been generally examined separately in the transit literature. Using an extensive panel data set, this analysis extends prior research in two directions. First, efficiency rankings and efficient subsets of transit systems are obtained through data envelopment analysis (DEA), a non-parametric linear programming based methodology. Second, based on the results of the DEA analysis, globally efficient frontier production functions, in the context of transit operations in the United States, are built. The results indicate that when jointly considered, there is an improvement on both the theoretical and empirical aspects of examining efficiency and production in transit systems. Further, the results indicate that efficiency and returns to scale findings differ substantially depending on the evaluation methodology used.