DISTRIBUTIONAL EQUITY AND OPTIMAL PRICING OF URBAN TRANSPORT

A theoretical model is developed for the pricing of urban transport that takes into account the three related problems of rationing, investment and income distribution. Feldstein's technique is used and it is shown that when the distributional aspect of pricing is considered pricing deviates from marginal cost pricing. It is shown that price also deviates from marginal cost when various "second best" constraints are introduced. Four cases of urban transport, which has two alternative modes, automobile and bus transit, are considered. In the first case marginal cost pricing yields Paretian efficiency, but concern for distributional equity requires price to deviate from marginal cost. The second case introduces a budget constraint. The third case considers a situation where automobile users pay only average cost; in this case a bus subsidy is justified on grounds of efficiency as well as equity. The last case considers the capacity constraint of the highway system.

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  • Corporate Authors:

    London School of Economics and Political Science

    Houghton Street, Aldwych
    London WC2A 2AE,   England 
  • Authors:
    • Abe, M A
  • Publication Date: 1975-5

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  • Accession Number: 00128255
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Mar 10 1981 12:00AM