Fare evasion in public transport: How does it affect the optimal design and pricing?
Document Type
Journal Article
Publication Date
2023
Subject Area
economics - pricing, economics - fare revenue, economics - subsidy, planning - methods, planning - service improvement, planning - service quality
Keywords
Fare evasion, Pricing, Public transport, Subsidy, Welfare
Abstract
Fare evasion produces significant revenue losses in public transport systems. Recent research has found that low service quality and high prices are important determinants of fare evasion. However, the economic literature that studies the optimal public transport provision has overlooked the phenomenon. We develop a demand model of horizontal differentiation to investigate how fare evasion affects the design and pricing of public transport that maximizes utilitarian social welfare. We show analytically that fare evasion can create incentives to reduce public transport prices and improve service quality, putting upward pressure on its subsidization. We perform numerical simulations and sensitivity analysis to quantify the impact of these incentives on the public transport provision. These simulations confirm that the incentive to reduce fare evasion can lead to an optimal design and price that requires subsidies.
Rights
Permission to publish the abstract has been given by Elsevier, copyright remains with them.
Recommended Citation
Ramos, R., & Silva, H. E. (2023). Fare evasion in public transport: How does it affect the optimal design and pricing?. Transportation Research Part B: Methodological, 176, 102803.
Comments
Transportation Research Part B Home Page:
http://www.sciencedirect.com/science/journal/01912615