Scandinavian Working Papers in Economics

Working papers in Transport Economics,
CTS - Centre for Transport Studies Stockholm (KTH and VTI)

No 2014:27: Optimal supply of public transport: subsidising production or consumption or both?

Jan-Eric Nilsson (), Joakim Ahlberg () and Roger Pyddoke ()
Additional contact information
Jan-Eric Nilsson: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Joakim Ahlberg: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Roger Pyddoke: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden

Abstract: This paper compares two approaches for providing public transport: competitive tendering and vouchers. The functioning of tendering is well known. The voucher alternative means that commercial operators charge passengers a fare and are also paid by the public sector principal for each. The paper establishes that it is also necessary to subsidize quality, here referring to the number of busses. Under full information, the two approaches would result in the same welfare maximizing outcome. Vouchers may be more expensive for taxpayers. The case for vouchers is shown to be stronger under an asymmetric information framework.

Keywords: Tendering; Vouchers; Mohring effect; Public transport; (A)symmetric information

JEL-codes: R40

32 pages, December 18, 2014

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CTS2014-27.pdf PDF-file 

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