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Pareto efficient strategies for regulating public transit operations

Abstract

This paper investigates how the local authorities could efficiently regulate the public transit, which is operated by a private firm. Both the waiting time at stops and the in-vehicle congestion costs are taken into account to reflect the transit service quality. The Pareto-efficient frontier is derived and three types of regulation strategies, namely Price-cap, Return-on-output and Quantity control, are analyzed and compared. On one hand, although the Price-cap regulation can attract more demand effectively, the private firm will inefficiently supply a lower frequency to keep the cost down. On the other hand, both the Return-on-output (ROO) and Quantity-control regulations are Pareto efficient that can keep the transit system operating along the Pareto-efficient frontier. Especially, Quantity-control regulation seems to be more attractive than ROO as there is no need for the firm’s accounting information. In addition to the investigations on regulation, a new optimal demand-frequency correspondence is also derived that extends the Mohring’s “Square Root Principle” in incorporating transit in-vehicle congestion effects.

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Acknowledgements

The authors would like to thank two anonymous reviewers and the conference participants at CASPT 2009 (Hong Kong) for their helpful comments. The work described in this paper was supported by the joint research scheme between the National Natural Science Foundation of China (70801002, 70931160447, 71071011) and the Research Grant Council of the Hong Kong Special Administrative Region (N_HKUST607/09) and a project from the Fundamental Research Funds for the Central Universities (YWF-10-01-A26).

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Correspondence to Qiong Tian.

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Tian, Q., Yang, H. & Huang, HJ. Pareto efficient strategies for regulating public transit operations. Public Transp 3, 199–212 (2012). https://doi.org/10.1007/s12469-011-0047-8

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Keywords

  • Transit regulation
  • Pareto
  • efficient frontier
  • Quantity control
  • Congestion