Should Urban Transit Subsidies Be Reduced?
Ian W. H. Parry and Kenneth A. Small
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| Article Citation |
Parry, Ian W. H., and Kenneth A. Small. 2009. "Should Urban Transit Subsidies Be Reduced?" American Economic Review, 99(3): 700–724.
DOI:10.1257/aer.99.3.700
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| Abstract |
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, pollution,
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 current
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,
R42, R48)
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| Additional Materials |
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| Authors |
Parry, Ian W. H. (Resources for the Future, Washington, DC)
Small, Kenneth A. (U CA, Irvine)
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| JEL Classifications |
L92: Railroads and Other Surface Transportation
R41: Transportation: Demand, Supply, and Congestion; Safety and Accidents; Transportation Noise
R42: Transportation Systems: Government and Private Investment Analysis; Transportation Planning
R48: Transportation Systems: Government Pricing; Regulatory Policies
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