Welfare maximisation in public transport. An analysis of the development in 7 Norwegian cities

We have analysed the developments in 7 Norwegian urban public transport systems in the period 1986 to 1999. - Subsidies have been reduced by 42 percent in the period, and by more when calculated as per vehicle-kilometre. - Fares have risen by 23% partly due to cuts in subsidies. - Passengers have become more sensitive to the fare level as the fare level has increased. We have estimated an overall fare elasticity of -0.49. Total demand has dropped by 5% in the period, mainly due to increased fares. - A social welfare balance sheet, which looks at the effects of changes in subsidies, service levels, fares, and modal shift, shows that the latest years’ developments have cost society NOK 157 million (1998-prices) in 1999 relative to 1986. The main reason for this is the fact that subsidy cuts have not led to significant cost efficiency gains. Rather, the burden of financing public transport has been transferred from the public purse (reduced subsidies) to the passengers (increased fares).