Optimal Mass Transit Subsidies

Friday, April 14, 2006, 12:00pm to 1:00pm PDT
Kenneth A. Small, Professor of Economics, U.C. Irvine

The video begins at 9:25.

This paper, co-authored with Ian W.H. Parry, derives formulas for the welfare effects of reforming subsidies for peak and off-peak urban rail and bus fares, and applies them to the metropolitan areas of Washington, D.C., Los Angeles, and London. The model accounts for congestion, pollution, oil dependence, and accident externalities associated with automobiles and each transit mode. It also accounts for scale economies in transit supply, costs of accessing and waiting for transit service, crowding costs, pre-existing fuel taxes, and the transit agency’s adjustment of frequency, vehicle size, and route network in response to changes in demand. We find that in almost all cases existing subsidies – which typically exceed 50% of operating costs – are either about right, or possibly too low, across bus and rail, peak and off-peak period, in the three cities.

Speaker Biography: Kenneth A. Small, Professor Emeritus of Economics at the University of California at Irvine, specializes in urban, transportation, and environmental economics. Recent research has concentrated on urban highway congestion, measurement of value of time and reliability, effects of fuel efficiency standards, public transit pricing, and the role of fuel taxes in managing external costs of automobiles. Prof. Small served five years as coeditor of the international journal, Urban Studies, and is now Associate Editor of Transportation Research Part B – Methodological as well as a member of the editorial boards of four other professional journals. He has served on several study committees of the National Research Council, most recently one that examined a federal program on congestion management and air quality. He has advised the Canadian Royal Commission on National Passenger Transportation, the European Union, the South Coast Air Quality Management District (where he served on a scientific advisory committee), and the World Bank. At Irvine, he previously served as Chair of Economics and Associate Dean of Social Sciences.