Impact of a Cost Minimisation User Cost Model on Public Transport Subsidy

Abstract

We show that optimal public transport subsidy is sensitive to the use of alternative user cost models, and that a model based on cost minimisation principles may lead to an improvement in subsidy estimates. For the case of homogeneous consumers and non-peaked demand, the cost minimisation user cost model yields optimal subsidy estimates which differ by up to 55% from those generated by existing'models. Multiple optimal subsidy equilibria may also exist arising from a kink in the user cost schedule at a critical frequency and a resulting discontinuity in the marginal benefit of frequency enhancement scheduleefficiency; economic models; costs; economic equilibrium