Mechanism Design for an Incentive Subsidy Scheme for Bus Transport

Wenqian Zou, Meichen Yu and Shoshi Mizokami
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Wenqian Zou: Economics and Management College, Civil Aviation University of China, Tianjin 300300, China
Meichen Yu: Economics and Management College, Civil Aviation University of China, Tianjin 300300, China
Shoshi Mizokami: Graduate School of Science and Technology, Kumamoto University, Kumamoto 860-8555, Japan

Sustainability, 2019, vol. 11, issue 6, 1-13

Abstract: Large public transport subsidies necessitated by operating deficits have become a heavy financial burden on some local governments. However, the present subsidy scheme lacks incentives to encourage bus operators to reduce deficits to lessen subsidies. In order to motivate bus operators to exert their roles in reducing these subsidies to ensure sustainable finance, this paper designs an incentive subsidy scheme based on the Laffont–Tirole model. This scheme is designed to motivate bus operators to endeavor to reduce deficits so as to obtain a premium, thus minimizing the total amount of subsidies and maximizing social benefit. The case of the bus network in Kumamoto, Japan, shows how, with this subsidy scheme, bus operators can play roles in lessening subsidies, allowing a win-win situation for both bus operators and the local government, and maximizing social benefit to realize the sustainability of the city. Finally, findings of our sensitivity analysis with imperfect information suggest that the length of bus lines in a network should be shortened in order to avoid cost waste to lessen subsidies.

Keywords: public transport; incentive subsidy scheme; Laffont–Tirole model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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