Optimal transit Prices under Increasing Returns to Scale and a Loss Constraint

Optimal transit Prices under Increasing Returns to Scale and a Loss Constraint

Welfare loss might be reduced by requiring total revenues from all units in an urban transport system to meet a proportion of total costs, instead of applying the constraint to each unit separately. This may need an agency to administer prices and cross-subsidisation. Prices are calculated for the East Bay Area of the San Francisco Bay Area.

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Because values of time and passenger behaviour depend on the level of frequency it is found that: (1) in urban public transport there may be one low-deficit local optimum and one high-deficit local optimum, one of which is global; (2) contrary to what might be expected, optimal financial deficit per passenger is typically larger for high frequency services than for low-frequency services; (3) the optimal off-peak may exceed the optimal peak price.

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