Implications of the cost of public funds in public transit subsidization and regulation |
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| Institution: | 1. Department of Civil and Environmental Engineering, University of Maryland, College Park, 1173 Glenn Martin Hall, College Park, MD 20742, United States;2. Department of Finance and Investment, Sun Yat-Sen Business School, Sun Yat-Sen University, Bldg 388, 135 Xingangxi Rd, Guangzhou 510275, China;1. School of City and Regional Planning, Georgia Institute of Technology, Atlanta, GA 30332, United States;2. Department of Civil Engineering, University of Memphis, 3815 Central Avenue, Memphis, TN 38152, United States;1. Business School, Sun Yat-sen University, Bldg 388, 135 Xingangxi Rd, Guangzhou 510275, China;2. Civil & Environmental Engineering, University of Maryland, College Park, MD 20742, United States;3. School of Management, Huazhong University of Science and Technology, Wuhan 430074, China;1. Wuhan University, 8 Donghu South Road, Wuhan 430072, China;2. The University of Texas at Austin, 1 University Station, Stop 7500, Austin, TX 78712, USA;3. Newcastle University, NewRail – Newcastle Centre for Railway Research, Stephenson Building, Newcastle upon Tyne NE1 7RU, UK;1. Parsons Corporation, 100 M Street, South East, Washington, DC 20003, United States;2. Department of Civil & Environmental Engineering, University of Maryland, College Park, 1173 Martin Hall, College Park, MD 20742, United States |
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| Abstract: | 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. |
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| Keywords: | Public transit Subsidization Cost of public funds Social welfare |
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