Effects of Crowding on the Optimal Subsidy of Public Transport

Strommer, Tamás (2021) Effects of Crowding on the Optimal Subsidy of Public Transport. In: 10th Young Researchers Seminar 2021, 15-17. September 2021, Portorož, Slovenia.

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Abstract

Subsidizing public transport companies is a worldwide used policy due to the scale economies and low specific travel costs of these kind of transport services. Frequent use of subsidies, however, does not mean uniformity, as there are many methods of subsidizing transport companies. Recent studies has shown that the amount of subsidy applied varies greatly depending on the attributes of the city, service provider and transport mode. The purpose of the present study is to reconsider a model that optimizes fares, and modify the model’s computation method by using new parameters that simplifies the management of crowding costs. The study presents the theoretical background of the topic, the important modifications made in the model, and also demonstrates usability of the model by examining the pricing of the Hungarian interurban transport system. The results recalculated with the modified model showed that crowding cost is a critical component of optimal pricing, as even at a moderate congestion level travel costs are increased by 30–50%. This means, that the optimal fares aimed to reduce the costs of crowding are higher than they were previously set. In case of Hungarian interurban transport, a subsidy rate of around 90% should be applied, with the exception of peak period bus transport, for which the calculated subsidy rate is 74%.

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