Subsidies and welfare maximization tradeoffs in bus transit systems

Zhou, Ying; Kim, Hong; Schonfeld, Paul; Kim, Eungcheol
September 2008
Annals of Regional Science;Sep2008, Vol. 42 Issue 3, p643
Academic Journal
Under a maximum welfare objective, a fixed route bus system and a flexible route bus system are optimized subject to various financial constraints. For each bus system, the decision variables including fare, headway, route spacing, and service zone area are optimally solved to analyze unconstrained, break-even and subsidy cases. Numerical results and sensitivity analysis are presented in the paper. From the numerical evaluation, it is shown that the effects of subsidies on welfare are quite different for a fixed route bus system versus a flexible route bus system. For the fixed route bus system, the optimal welfare curve is very flat over a wide range of subsidies. However, for the flexible route bus system, the break-even constraint causes a large loss in the social welfare. Thus, with the welfare maximization objective, the break-even policy or low transit subsidy policy may be preferable for the fixed route bus system, but not for the flexible route bus system. The results derived from this study can support effective decision-making on bus transit systems in areas that may experience significant shifts in residential density, as well as geographic or physical changes in their street networks.


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