User Economies of Scale: Bus Subsidy in Adelaide*

Abstract

This paper considers the User Economies of Scale public transport subsidy argument. using buses in Adelaide as a case study. The paper: operates at a corridor level: models user choice between random and planned hehaviour using a logit model; uses a peak load model; models existing social justice policy; considers the effect of distortionary public finance; and considers the impact of introducingcompetitive tendering in senice delivery. It concludes that current subsidies are significantly higher than can he justified on user economies of scale grounds, and optimal subsidy results are significantly affected by distortionary public finance. ECONOMIC RECORD DEC

Indirect production function and the output effect of public transit subsidies

“…Further, because transit systems misperceive their costs as low they overuse some of their inputs resulting in overproduction and an increase in overall resource cost. This increase in output also results from the subsidies increasing service frequency (van Reeven 2008;Tistato 2007;Mohring 1972) and it is calculated in the next step using an indirect production function.…”

Performance in urban public transport systems: a critical analysis of the Portuguese case

“…Conversely, the authors advocating the advantages associated with subsidies invoke, for example, the gains from a better use of scale economies, i.e. introducing subsidies leads to a reduction in tariffs, which contributes to increasing passenger numbers, with a diminishing marginal cost (Obeng, 1987;Tisato, 1997). Tisato (1998) further considers that subsidies can play a useful role in terms of improving the reliability of public transport while improving its acceptance rate.…”

“…To sum up, contributions like those from Parshigian (1976), Bly and Oldfield (1986), Pucher (1995) and Karlaftis and McCarthy (1998) underline the emergence of net negative effects on financial indicators following the granting of subsidies. Obeng (1987), Tisato (1997, 1998, Lucas (2006) and Gwilliam (2008), however, argue in favour of the allocation of subsidies, mainly due to their expected positive net effects in terms of social and environmental impacts. They also base their reasoning on the prospects of maximising economies of agglomeration (which arise, e.g.…”