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7 Paper submitted to the 11th World Conference on Transport Research,
University of California, June 24th 28th 2007
Generalised costs and travel distance in passenger transport
Terje Andreas Mathisen*
Bod Graduate School of Business, NO-8049 Bod, Norway
(* Author for correspondence: Email: terje.mathisen@hibo.no)
Abstract
Fares and time costs are determining factors for the demand of public passenger transport and they are both depending on travelling distance. The paper discusses how fares and time costs are influenced by travel distance and applies empirical evidence from Norway to calculate the relationship between generalised costs and travel distance for different transport modes. The calculations show that time costs generally are the most important part of the generalised costs and a reduction of time costs on public transport modes will be an important initiative to improve the competitiveness towards the private car.
Keywords: Fares, generalised costs, passenger transport, time costs, travel distance
1. Introduction
Descriptive statistics of the domestic trips made by the population of Norway has been repeatedly studied in travel surveys ADDIN EN.CITE Denstadli200621021027Denstadli, Jon MartinEngebretsen, ysteinHjorthol, RandiVgane, Liva2005 Norwegian travel survey - key results2006Oslo, NorwayInstitute of Transport Economics844Denstadli200320920927Denstadli, Jon MartinHjorthol, RandiRideng, ArneLian, Jon IngeTravel behaviour in Norway2003OsloInstitute of Transport Economics637(Denstadli et al., 2006; Denstadli et al., 2003). The domestic travel patterns are therefore well documented and provide the basis for further analyses of passengers travel behaviour. It is a stated goal for the Norwegian government to move the passenger travels from private car to public transport modes. The modal choice in passenger transport is determined by factors like habit, comfort, information, fares and speed which can be combined and given approximate pecuniary values using the term generalised costs comprised by fares (monetary costs) and time costs ADDIN EN.CITE Balcombe2004145e.g. 14527Balcombe, RMackett, RPaulley, NPreston, JShires, JTitheridge, HWardmann, MWhite, PThe demand for public transport: a practical guide2382004Transport Research Laboratory, UK593(e.g. Balcombe et al., 2004).
Travel distance is perhaps the most important explanatory factor for the fare level on a trip. This is reasonable because underlying factors in this market, such as operating costs and demand, are highly influenced by travel distance. A close relationship is regarded as fair for the passengers because it implies increased fares as travelling distance increases. However, when considering the relationship between fares, generalised costs, quality and travel distance and how these relationships are affected by management objectives, it is not unambiguously clear that fares will increase with distance ADDIN EN.CITE Jrgensen20041117Jrgensen, FinnPedersen, PAPedersen, PA
Bodo Grad Sch Business, N-8049 Bodo, Norway
Bodo Grad Sch Business, N-8049 Bodo, Norway
Norland Res Inst, N-8049 Bodo, Norway
Univ Kent, Keynes Coll, Dept Econ, Canterbury CT2 7NP, Kent, EnglandTravel distance and optimal transport policyTransportation Research Part B - MethodologicalTRANSPORT RES B-METH
TRANSPORT RES B-METH415430385travel distanceoperators' objectivesoptimal fareoptimal qualitygeneralised costsFARES2004JUNISI:000220929300002<Go to ISI>://000220929300002 (Jrgensen and Pedersen, 2004).
In addition to the monetary expenses of fares, the time related to travelling with a transport mode has a pecuniary alternative value for the passengers. A rational passenger seeks to minimize the sum of monetary expenses (fares) and time costs when travelling. Hence, a passenger would rather choose a faster and more expensive transport mode than a cheap and slow alternative if it implies lower generalised costs for the trip. A comparison of the generalised costs is, thus, an indicator of the competitive conditions between transport modes.
The aim of this paper is twofold. First, a review based on earlier studies is presented of the relationship between fares and travel distance for different transport modes in Norway. Second, standard parameter values of time costs are applied to calculate generalised costs and derive the best transport mode alternative for different distances. Then policy implications can be outlined with respect to passengers choice of transport mode according to the stated goal of the Norwegian government to get a higher share of passengers using public transport mode.
The structure of the paper is as follows. Section 2 discusses the importance of travel distance in passenger transport. The empirical data for fares are presented in section 3 and the assumptions for calculating time costs are given in section 4. Then, generalised costs for different transport modes are derived and analysed in section 5. Finally, section 6 gives the conclusions and implications.
2. The importance of travel distance on the demand for transport
Transport service is a normal good with a falling demand curve with respect to price ADDIN EN.CITE Hensher2001184see e.g. 1846Hensher, D. A.Brewer, AnnTransport: an economics and management perspectiveXXII, 351 s.Transportation . ManagementTransportation . ManagementTransportkonomiorganisering markeder kostnader transportkonomiTransport2001OxfordOxford University Press0-19-877641-101012831xHBO HBO 388 Hen
HSM HSMolde 388 H
HSM HSMolde 388 H
UBT HS 338.47 Hen
NHHB NHHB 338.47 H39t
HIST HIST/ATI 388 Hen
UBIT DRAGVOLL Mc 67x Hen
HIA HIA/KRIS 388.049 Hen
UBIT ARK/BYGBIB 338.47 H39t(see e.g. Hensher and Brewer, 2001). Studies looking at the influence of fares on demand indicate elasticities in the short run on -0.4 and in the long run around -1 ADDIN EN.CITE Paulley200621121117Paulley, N.Balcombe, R.Mackett, R.Titheridge, H.Preston, J.Wardman, M.Shires, J.White, P.The demand for public transport: The effects of fares, quality of service, income and car ownershipTransport PolicyTransport Policy295-3061342006Jul0967-070XISI:000238468900003<Go to ISI>://000238468900003 (Paulley et al., 2006). However, it is assumed that a rational passenger will not only consider fares but also assess all other factors that influence the total price of the trip and then choose the transport mode which gives the lowest generalised costs.
The passengers generalised costs (total price) for a trip, G, presented in equation REF _Ref165095160 \h (1) is the sum of pecuniary costs, P, and opportunity costs of elapsed time, KT ADDIN EN.CITE Gronau197019819817Reuben GronauThe Effect of Traveling Time on the Demand for Passenger TransportationJournal of Political EconomyJournal of Political Economy377-3947821970(Gronau, 1970). The pecuniary costs, P, are tangible expenses like fuel, toll and fares. Time has a price and alternative use which implies that passengers time spent on board a vehicle could be allocated to other activities and has an alternative usage that can be given a pecuniary value ADDIN EN.CITE Bruzelius197950506Bruzelius, NilsThe value of travel time: theory and measurementVelferdskonomiReiserSamferdselVerdifastsettingSamferdselreisevaner samfunnskonomi reisetid verdsetting metode tidsverdiArbeidsreiser1979LondonCroom Helm0-85664-821-3Becker1965515117Becker, Gary S A theory of the allocation of timeThe Economic JournalThe Economic Journal493517752291965(Becker, 1965; Bruzelius, 1979). These are intangible costs and comprised of the price of time, K, and a measure of the elapsed time, T.
( SEQ ( \* ARABIC 1) EMBED Equation.3
Travelling distance influences both supply and demand in the market of passenger transport. For the transport company, it reasonable to assume that increased distance gives higher costs. In addition to paying higher fares when distance increases, a passenger spends more time on the transport mode. This increases G presented in equation REF _Ref165095160 \h (1) and reduces the demand for trips. The influence on time costs of changes in distance is not constant over distance and the analysis will accompany the recommendations of the Norwegian Directorate of Roads ADDIN EN.CITE Directorate of Roads200618718746Directorate of Roads,Konsekvensanalyse. Hndbok 140 - VeiledningHandbook in Consequence Analysis2006In Norwegian(2006) suggesting a separation between short and long trips with a threshold value of 100 kms. How travel distance influences the combination of fares and time costs (generalised costs), depends on the functions. The applied specifications are based on linear functions, as in Gronau ADDIN EN.CITE Gronau197019819817Reuben GronauThe Effect of Traveling Time on the Demand for Passenger TransportationJournal of Political EconomyJournal of Political Economy377-3947821970(1970), or squared functions.
2.1. Fares
With the costs and demand characteristics as a basis, the fare scheme is designed to maximize the underlying objective function of the company or the transport authority. For example, it is reasonable that transport companies set fares according to profit maximization while transport authorities to a greater extent seek to maximize the welfare of the society. Generally, the larger weight put on profit compared to consumer surplus, the higher are the fares for any distance ADDIN EN.CITE Jrgensen200515915927Jrgensen, FinnPreston, JohnThe relationship between fare and travel distance - some comments2005Transport Studies Unit, University of Oxford911(Jrgensen and Preston, 2005). Additionally, as discussed for bus transport by Nash ADDIN EN.CITE Nash1978161617Nash, C. A.Management objectives, fares and service levels in bus transportJournal of Transport Economics and PolicyJournal of Transport Economics and Policy70851211978JanuaryLondon School of Economics & Political Science(1978), companies and transport authorities could maximize other objectives than profit and social surplus. For example, Mathisen ADDIN EN.CITE Mathisen20033332Mathisen, Terje AndreasFinn JrgensenSammenhengen mellom takst og avstand i regulerte- og uregulerte markeder: teori og empiriThe relationship between fares and travel distance in high regulated and low regulated markets: theory and empirical evidence83 pagesMasterbedriftskonomi2003BodBod Graduate School of Business031165249HBO HBO studentarbeid Bedriftskonomi hovedfagMaster thesisIn Norwegian(2003) consider goals relevant for managers such as sales and number of passengers when deriving the relationship between fares and travel distance. Jrgensen and Preston ADDIN EN.CITE Jrgensen200515915927Jrgensen, FinnPreston, JohnThe relationship between fare and travel distance - some comments2005Transport Studies Unit, University of Oxford911(2005) have addressed how fares are related to travel distance and management objectives using two types of objective functions combined with three types of demand functions and find that the relationship between fare and travel distance depends on the specifications of the functions and is not necessarily positive.
The following analysis of fares and travel distance will however focus on studying the current fares independent of management goals. Using a squared function specification, the pecuniary costs are defined in equation REF _Ref145821614 \h (2) and represents how fares on public transport services and payable costs on private transport modes such as the car d e v e l o p w i t h r e s p e c t t o d i s t a n c e .
( S E Q ( \ * A R A B I C 2 ) E M B E D E q u a t i o n . 3 , w h e r e 0 i e" 0 , 1 i > 0
E q u a t i o n R E F _ R e f 1 4 5 8 2 1 6 1 4 \ h ( 2 ) s p e c i f i e s t h a t t h e p e c u n i a r y c o s t s f o r t r a n s p o r t m o d e i , P i , a r e r e l a t e d t o t r i p d i s t a n c e m e a s u r e d i n k i l o m e t r e s , D , w h e r e i = { a i r h i g h r e g u l a t i o n , a i r l o w r e g u l a t i o n , b u s h i g h r e g u l a t i o n , b u s l o w r e g u l a t i o n , f a s t c r a f t , f e r r y , c a r , r a i l } a s d e s c r i b e d i n s e c t i o n 3 . 1 . T h e p a r a m e t e r 0 i s a d i s t a n c e i n d e p e n d e n t e l e m e n t a n d c a n b e i n t e r p r e t e d a s t h e m i n i m u m f a r e . T h e p o s i t i v e p a r a m e t e r 1 i g i v e s t h e l i n e a r i n c r e a s e i n f a r e s w i t h r e s p e c t t o d i s t a n c e . F i n a l l y , 2 i i s t h e c o e f f i c i e n t o f t h e s q u a r e d d i s t a n c e a n d i n d i c a t e s t h e c u r v i n g o f t h e r e l a t i o n s h i p b e t w e e n f a r e a n d d i s t a n c e . T h e i n c r e a s e o f t h e f a r e s w i t h r e s p e c t t o d i s t a n c e w i l l b e c o n c a v e i f 2 i <