Chapter 11

Question 1

Goals of transport subsidisation differ by nature of country:

Answer 1

Developing – equity
Developed – environment
All – economy

Question 2

Two types of deficits:

Answer 2

1. Planned – loss known beforehand – frequent in public transport
2. Unplanned – loss not known beforehand
   Justified planned and unplanned losses can be financed through subsidies

Question 3

How to cover deficits:

Answer 3

1. Conventional subsidies
2. Internal subsidisation (cross subsidisation)
3. Tariff differentiation
4. Twofold tariffs
5. Loans

Question 4

Define and list advantages and disadvantages (if applicable) of conventional subsidies

Answer 4

•	Received from state
•	State receives taxes
Advantages:
•	Society pays 
•	Redistributes income (poverty alleviation)
•	Simple
Disadvantages:
•	Cost often carried by non-users
•	Creates expectation of future subsidies (lowers efficiency)

Question 5

Define and list advantages and disadvantages (if applicable) of internal subsidisation (cross subsidisation)

Answer 5

•	Use reserves/profits from other divisions in the firm
Advantages:
•	More direct form of financing 
•	Users pay – not the public
Disadvantages:
•	Impossible if
o	No profitable division
o	No reserves
o	Not accepted politically

Question 6

Define and list advantages and disadvantages (if applicable) of tariff differentiation

Answer 6

• Divide total demand according to elasticity

* Tariff depends on individual sub-markets

Question 7

Define and list advantages and disadvantages (if applicable) of twofold tariffs

Answer 7

• Tariffs consisting of two parts:
o User tariff (P=MC) user pays for their costs
o Fixed amount
• Advantage – current users cover the deficit

Question 8

Define and list advantages and disadvantages (if applicable) of loans

Answer 8

• Planned deficit
• Loan vs subsidy:
o Future benefits = loan
o Benefits for current users = subsidy

Question 9

Objectives of subsidies:

Answer 9

1. Create safer and better environment in urban areas by means of a mode division that favours public transport
2. Find a more efficient, cheaper, and fuel-efficient solution for urban transport
3. Maintain existing city shape
4. Optimal use of existing infrastructure and services
5. Maintain viable public transport service for the poorest
6. Make provisions for the disabled and far away

Question 10

Additional benefits of subsidies

Answer 10

• Benefits community
• Decentralisation
• Redistribution of income

Question 11

subsidies can influence behaviour: state uses subsidies to

Answer 11

1. Get commuters out of car

2. Support poorer sections

Question 12

Macro justifications for subsidies

Answer 12

1. Maintain full employment:
   • Provides and lowers cost of access to employment
2. Fight inflation:
   • Prevents fast rising tariffs (especially fuel)
3. Support social groups
   • Prevent social exclusion

Question 13

Micro justifications for subsidies

Answer 13

1. Distortion of price mechanism:
   • Cars do not carry full cost (environment, infrastructure)
2. Scale benefits
   • Return increases as operating scope increases
3. Innovation
   • Innovation expensive
4. Safety net

Question 14

Social justification for subsidies

Answer 14

• Support low-income population

Question 15

Arguments against subsidies:

Answer 15

1. Inhibits management initiative
2. Administrative burden
3. Limits supplier in terms of routes and services
4. Long term – poor service and land use (urban crawl)
5. Often wrongly allocated

Question 16

Types of subsidy systems:

Answer 16

1. Capital subsidies:
2. Loss subsidies
3. Input subsidies:
4. Output subsidies:
5. Tariff subsidy: