Abstract
Urban growth is assumed to depend on the balance between advantages of urban employment and the costs of public and private transport. With constant money prices or average cost pricing of buses (free competition), growth is towards a small congested city, with a period of urban decay when congestion and all travel costs are increasing although the city is shrinking. Marginal social cost pricing of both modes removes this dynamic inefficiency and leads to much larger cities with faster transport services. Short-run effects and profitability are found to be poor indicators of the long-run implications of policies.
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