Small Urban and Rural Center on Mobility

Posts tagged as "marginal cost pricing"

Presentation Recordings Posted Online

Presentation recordings for three recent SURTC research projects are available online. The recordings summarize the research methods and major findings from each of the studies. These presentations were also given recently at the Transportation Research Board (TRB) Annual Meeting. Click on the links below to view the recordings.

Transportation Seminar: Marginal Cost Pricing and Subsidy of Transit

As part of UGPTI's Transportation Seminar Series, SURTC researcher Jeremy Mattson will present a seminar on Marginal Cost Pricing and Subsidy of Transit.  This seminar, which is based on a recently completed study, will present results from a survey of small urban transit agencies regarding recent changes in service levels, fares, and funding; discuss the rationale for subsidizing transit; present cost data for small urban transit systems; focus on economies of scale, marginal cost pricing, and transportation externalities; and present results from a cost model. The seminar will be held Nov. 1, 2011 at 2:00 p.m. in Room 422 of the IACC building on the campus of North Dakota State University. Shortly after the conclusion of the seminar, links to the presentation and a recording of the presentation will be posted online on the Transportation Seminar Series website.

Marginal Cost Pricing and Subsidy of Transit in Small Urban Areas

A SURTC study conducted by Jeremy Mattson and David Ripplinger found that small urban transit agencies experience increasing returns to scale and density. This implies that increasing service levels will result in lower average costs. The report, titled "Marginal Cost Pricing and Subsidy of Transit in Small Urban Areas," has been published and is now available online.

This study analyzes economies of scale and density as a rationale for subsidizing transit agencies in small urban areas. A long-run cost model is estimated using data for 168 transit agencies that directly operate fixed-route bus service in small urban areas. Using vehicle revenue miles as transit output, results show that small urban transit agencies experience economies of scale and density. A full cost model was estimated that included the addition of external costs, such as environmental effects, and benefits. A benefit of increasing service levels is a reduction in rider waiting times. The study attempted to quantify this benefit. Results from the model were used to estimate the marginal social cost of providing service. Setting the fare equal to marginal social cost would maximize social welfare.

The results provide justification for subsidizing transit. The needed subsidy is calculated as the difference between the revenue generated by the optimal fare and that needed to maintain efficient levels of production. The rationale for subsidies is an important issue as many agencies have experienced recent reductions in operational funding.

Included in the report is a survey of transit agencies in small urban areas regarding recent changes in fares, service levels, and funding. The survey found that nearly half of these transit providers have either reduced service or increased fares over a two-year period, primarily because of decreases in operational funding.

For more information, contact Jeremy Mattson at The publication can be downloaded at the following link: Marginal Cost Pricing and Subsidy of Transit in Small Urban Areas (pdf)