This paper derives intuitive and empirically useful formulas for the optimal pricing of passenger transit and for the welfare effects of adjusting current fare subsidies, for peak and off-peak urban rail and bus systems. The formulas are implemented based on a detailed estimation of parameter values for the metropolitan areas of Washington (D.C.), Los Angeles, and London. Our analysis accounts for congestion, pollution, and accident externalities from automobiles and from transit vehicles; scale economies in transit supply; costs of accessing and waiting for transit service as well as service crowding costs; and agency adjustment of transit frequency, vehicle size, and route network to induced changes in demand for passenger miles. The results support the efficiency case for the large fare subsidies currently applied across mode, period, and city. In almost all cases, fare subsidies of 50 percent or more of operating costs are welfare improving at the margin, and this finding is robust to alternative assumptions and parameters.

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Should Urban Transit Subsidies Be Reduced

This paper derives empirically tractable formulas for the welfare effects of fare adjustments in passenger peak and off-peak rail and bus transit, and for optimal pricing of those services. The formulas account for congestion, pollu tion, accident externalities, scale economies, and agency adjustment of transit service offerings. We apply them using parameter values for Washington (DC), Los Angeles, and London. The results support the efficiency of the large cur rent fare subsidies; even starting with fares at 50 percent of operating costs, incremental fare reductions are welfare improving in almost all cases. These findings are robust to alternative assumptions and parameters. (JEL L92, R41,

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The presence of preexisting tax distortions, and the form of revenue recycling, can crucially affect the size - and possibly even the sign - of the welfare effect of road pricing schemes. The efficiency gains from recycling congestion tax revenues in other tax reductions can amount to several times the Pigouvian welfare gains from congestion reduction. Parry and Bento explore the interactions between taxes on work-related traffic congestion and preexisting distortionary taxes in the labor market. A congestion tax raises the overall costs of commuting to work and discourages labor force participation at the margin when revenues are returned in lump-sum transfers. The resulting efficiency loss in the labor market can be larger than the Pigouvian efficiency gains from internalizing the congestion externality. By contrast, if congestion tax revenues are used to reduce labor taxes, the net impact on the labor supply is positive and the efficiency gain in the labor market can raise the overall welfare gains of the congestion tax by as much as 100 percent. Recycling congestion tax revenues in public transit subsidies produces a positive, but smaller, impact on the labor supply. In short, Parry and Bento`s results indicate that the presence of preexisting tax distortions, and the form of revenue recycling, can crucially affect the size - and possibly even the sign - of the welfare effect of road pricing schemes. The efficiency gains from recycling congestion tax revenues in other tax reductions can amount to several times the Pigouvian welfare gains from congestion reduction. This paper - a product of Infrastructure and Environment, Development Research Group - is part of a larger effort in the group to study the cost-effectiveness of alternative transport policies. The study was funded by the Bank's Research Support Budget under the research project The Cost-Effectiveness of Alternative Transport Policies (RPO 683-39). Copies of this paper are available free. Please contact Roula Yazigi, email address ryazigi@worldbank.org. The authors may be contacted at parry@rff.org or abento@worldbank.org.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID293086_code020110510.pdf?abstractid=293086&mirid=5

Revenue Recycling and the Welfare Effects of Road Pricing

A survey of road pricing

The interplay between congestion and crowding externalities in the design of urban bus systems is identified and analysed. A multimodal social welfare maximisation model with spatially disaggregated demand is developed, in which users choose between travelling by bus, car or walking in a transport corridor. Optimisation variables are bus fare, congestion toll, bus frequency, bus size, fare collection system, bus boarding policy and the number of seats inside buses. We find that optimal bus frequency results from a trade-off between the level of congestion inside buses, i.e., passengers’ crowding, and the level of congestion outside buses, i.e., the effect of frequency on slowing down both buses and cars in mixed-traffic roads. A numerical application shows that optimal frequency is quite sensitive to the assumptions on crowding costs, impact of buses on traffic congestion, and overall congestion level. If crowding matters to users, buses should have as many seats as possible, up to a minimum area that must be left free of seats. If for any other reason planners decide to have buses with fewer seats than optimal (e.g., to increase bus capacity), frequency should be increased to compensate for the discomfort imposed on public transport users. Finally, the consideration of crowding externalities (on both seating and standing) imposes a sizeable increase in the optimal bus fare, and consequently, a reduction of the optimal bus subsidy.

http://repositorio.uchile.cl/bitstream/handle/2250/126546/Multimodal-pricing-and-optimal-design-of-urban-public-transport-The-interplay-between-traffic-congestion-and-bus-crowding.pdf?sequence=1

Davis Lewis

Papers

An integrated fares policy for transport in london