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Implementing Optimal Supply of Public Transport: The Choice between Tendering and Targeted Subsidies

J.-E. Nilsson, J. Ahlberg and R. Pyddoke

Journal of Transport Economics and Policy, 2016, vol. 50, issue 1, 21-38

Abstract: This paper compares two approaches for providing public transport: competitive tendering and targeted subsidies. The subsidy option means that commercial operators charge a fare, and are paid by the public sector principal both per passenger and per bus in service. This is the case since quality (the number of buses) would otherwise be sub-optimal. Under full information, the tendering and targeted subsidies would establish the same welfare-maximising outcome, while subsidies typically are more expensive for taxpayers. The case for targeted subsidies is stronger under an asymmetric information framework. © 2016 LSE and the University of Bath

Date: 2016
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