PRICING INVESTMENT DECISIONS AND SUBSIDIES IN TRANSPORT

This paper argues against transport subsidies, and suggests a policy, based on a modified form of long-run marginal cost pricing, that would enable transport undertakings to break even. Previous debate is summarized, which concluded that price should equal short-run marginal cost, and gave criteria for investment. The problems of indivisibilities and peak loading modify these rules, which were derived for electricity generation. The author discusses ways in which transport differs from other undertakings, including diversity, indivisibilities, joint costs, externalities, policy constraints, and the short-run marginal cost curve. Three arguments for subsidies are presented. Transport can be viewed as a public good, whose investment costs cannot be allocated. Or transport can be seen to produce increasing returns. Thirdly, one can hope that a reduction in price, by attracting motorists, can create a net benefit for public transport. The author refutes all these, and adds that subsidies make optimal investment difficult. Finally, the author argues that fares should cover the marginal cost of a new unit of investment, which may, however, in transport be quite divisible. Road pricing and investment in roads are needed, not subsidized public transport. /TRRL/

  • Corporate Authors:

    Manchester University, England

    Department of Economics
    Manchester,   England 
  • Authors:
    • Morgan, E V
  • Publication Date: 1974-9

Media Info

  • Features: Figures; References;
  • Pagination: p. 240-258

Subject/Index Terms

Filing Info

  • Accession Number: 00096987
  • Record Type: Publication
  • Source Agency: Transport and Road Research Laboratory (TRRL)
  • Files: ITRD, TRIS
  • Created Date: Jul 24 1981 12:00AM