1. Savage, Ian & August Schupp (1997). Evaluating transit subsidies in Chicago. Journal of Public Transportation, 1(2):93-117.
This paper presents a model that calculates the social
welfare benefits of using additional subsidy to reduce fare levels
or improve service levels of public transit in Chicago. The model
differentiates between the effects in peak and off-peak periods
for both bus and rapid rail service.
The potential welfare benefits of transit improvements accrue
to several different groups of people: (1) existing transit
riders; (2) automobile users who decide to switch to public
transit; (3) road users who benefit from reduced road congestion;
and (4) people who undertake new trips. These benefits are
compared with the welfare cost of the additional sales taxes that
are used to fund transit subsidies in Chicago. Results of the
analysis are that:
- Bus fares should be reduced, especially during off-peak and
weekend periods;
- Rail fares are "acceptable" in that the marginal benefit of
using subsidy to reduce fares is close to the excess burden of
raising the subsidy;
- Bus service levels are broadly acceptable, except for the peak
period where they are too high; and
- Rail service levels are too high at all times of the week, but
especially in the peaks and on Sundays.
In general, it is more advantageous to use subsidy monies to
reduce fares than improve service levels. Even if overall subsidy
levels were not increased, society would be better off if service
levels were reduced, and the money saved channeled into
reductions in fares.
View the published paper [25 pages, 1,262 kb PDF]. Also view the earlier manuscript version of this paper [19 pages, 100 kb PDF].
2. Savage, Ian & Kenneth A. Small (forthcoming). A comment on “Subsidization of Urban Public Transport and the Mohring Effect.” Journal of Transport Economics and Policy, forthcoming.
In an 2008 paper in the Journal of Transport Economics and Policy, Peran van Reeven argues that the "Mohring effect" - whereby subsidies increase ridership, the ridership increase engenders higher service frequencies, and the higher frequencies reduce transit riders cost by reducing the average waiting times at stops - is not relevant to the determination of transit subsidies because a profit-maximizing monopolist would supply frequencies that are the same as, or greater than, those that are socially optimal. Our analysis finds that his results depend on the reduction or elimination of the effect of fares on demand, causing optimal prices to be indeterminate within broad ranges. Consequently, van Reeven's model is an unsatisfactory tool for discussing subsidies in general, and the optimal combination of fare and frequency in particular.
View the earlier manuscript version of this paper [6 pages, 78 kb PDF].
Return to Ian Savage's Home Page
