Multimodal Transport Pricing: First Best, Second Best and Extensions to Non-motorized Transport

Abstract

In this paper, we examine the main concepts of transport pricing in an urban environment, focusing on the automobile, public transport and walking or cycling as travel alternatives. A review of the literature on the first-best and second-best pricing policies is provided, with an emphasis on public transport pricing, including the setting of frequency and vehicle capacity, the influence of bus congestion externalities and the interactions between transport pricing reforms and the broader tax system. A model is developed to analyse the impact of non-motorized transport on optimal public transport pricing policy, congestion interactions between cars and buses associated with the transfer of passengers at bus stops and the existence of a capacity constraint within the public transport mode.

Acknowledgements

This work has received financial support from Conicyt (Chile) through its programme of PhD scholarships. The detailed comments of two anonymous referees have greatly improved the final version of the paper.

Notes

For numerical comparisons on fares and subsidies, among several studies, see Proost and Van Dender (2008) and Parry and Small (2009).

See Rouwendal and Verhoef (2006) or Small and Verhoef (2007) for a more detailed discussion on second-best issues.

The history of road pricing and the evolution of the research on this topic have been extensively reviewed by Marcucci (2001) and Lindsey (2006). For a detailed survey on road pricing issues, see Tsekeris and Voß (2009).

A headway of 10 min or shorter is usually taken as the one that makes most passengers to ignore a timetable.

Other arguments in favour of subsidizing public transport include pursuing distributional or social objectives and option values, which are not treated in this paper (see Kerin, 1992; Preston, 2008).

Another extension is including route density as a decision variable, in which case, the optimal frequency results in a cubic root of a function of demand (e.g., Kuah and Perl, 1988; Chang and Schonfeld, 1991; Small, 2004).

As empirically found for pollution and accidents, but not for noise (De Borger et al., 1996). The Milan Ecopass scheme is a pioneer in the application of differentiated charges based on the emission standard of vehicles (Rotaris et al., 2010).

For an extended discussion on the advantages of general equilibrium models, see Calthrop et al. (2010).

Examples of multiperiod analyses are Glaister (1974), Glaister and Lewis (1978), De Borger et al. (1996) and Proost and Van Dender (2008).

We assume that the occupancy rate does not change with pricing reforms, that is, we ignore the possibility of car-pooling if road price increases.

In the case of London, other authors presented higher estimates of operating costs. Prud'homme and Bocarejo (2005) estimated that in 2003 the London congestion charging scheme's operating costs were 85% of toll revenue and that net revenue would not be enough to cover the annualized capital cost. Mackie (2005), Santos and Shaffer (2004) and Santos (2005) were more optimistic; they concluded that the operating cost was, respectively, 75%, 72% and 53–60% of the net revenue.