Optimal Fare Subsidies in Public Transportation (Case Study: Tehran Metropolitan)

One of metropolitan (such as Tehran) problem is highway and street congestion. Traffic problem solution, especially car congestion, is one of city authorities and governments concerns. There are several approaches for urban transportation demand management and reduction of highway and street congestion. One of the most important ones is public transportation development (bus and Subway) and encouraging citizens to use it. For motivate the use of the public transportation, in addition to creating physical attractiveness, it is necessary to create economic incentives. In order to economic motivation, the fare should be less than the private transportation. So, part of the public transportation average cost should be provided by the government as a fare subsidy as citizens pay a fare to the public transportation less than a private transportation. Fundamental problem in economics is determination of optimal level of this subsidy in such a way as to maximize the relative welfare of congestion reduction. So, in this study, we assess optimal fare subsidy for public transportation (bus and Subway) in Tehran metropolitan in year of 2016. Such a study has not been done so far in Iran. Results indicate that optimal fare subsidy for bus is between 0.3 to 32.3 percent and for Subway is between 0.02 to 38.52 percent. Also, the results indicate that by increasing the average cost elasticity of using passes, the optimal level of subway and bus fares subsidies will be increased. So, by changing current fare subsidy to derived optimal fare subsidy and bus and subway current cost controlling and increasing quantitative and qualitative services, in addition to reducing current costs, intra-city trips will be managed and one could hope to solve the traffic problem in Tehran.