User Economies of Scale: Bus Subsidy in Adelaide

This paper considers the User Economies of Scale public transport subsidy argument, using buses in Adelaide as a case study. The paper: operates at a corridor level: models user choice between random and planned behaviour using a logit model; uses a peak load model; models existing social justice policy; considers the effect of distor‐tionary public finance; and considers the impact of introducing competitive tendering in service delivery. It concludes that current subsidies are significantly higher than can be justified on user economies of scale grounds, and optimal subsidy results are significantly affected by distortionary public finance.