Should Buses Still Be Subsidized in Stockholm?

Abstract

Many public transport services are heavily subsidized. One of the main justifications of this is the expected beneficial effect on road congestion. Stockholm introduced congestion pricing in 2006 and the effects on car and public transport demand were carefully monitored. This change in prices provides unique estimates on price- and cross-price elasticities. This paper uses these data to model the optimal pricing, frequency, bus size and number of bus lanes for a corridor in the presence of congestion pricing of cars. Results show that the subsidies for peak bus trips are indeed too high. However, the major welfare benefits of the reform are due to a decrease in frequencies during the off-peak period and the use of larger buses.