The influence of demand incentives in public transport contracts on patronage and costs in medium sized Swedish cities

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The objective to reduce carbon emissions has inspired Swedish regional public transport authorities (RPTA) to adopt a goal of doubling public transport patronage from 2006 to 2020. Several measures have been used to achieve this goal. Increasing the public transport supply and increasing the share of contract payments tied to demand incentives are among them. The purpose here is to examine the effect of demand incentives on patronage in tendered bus contracts, controlling for other factors that affect public transport patronage, with panel data for 17 medium sized Swedish cities from 1997 to 2011. In the data for a subset of 10 cities from 2000 to 2011 the number of trips increased by 36 percent, the supply of bus kilometers by 38 percent, the revenues per boarding with 49 percent and the total costs with 106 percent.

The analysis does not find any statistically significant effects of demand incentives on either patronage or costs. In the demand models, only the effect of the price variable is significant and has the expected sign. In the cost models, all control variables have the expected signs and most are significant. Surprisingly, the estimate of the coefficient of the output variable bus kilometers is not significant. These results indicate that the combination of limited freedom for operators to influence important variables that determine demand and the demand incentives that were used during the observed period, were insufficient to give statistically significant effects.

Contrary to the assumption that appears to underlie the recommendations of a subcommittee of the Swedish Public Transport Association current demand incentives appear to be ineffective. This suggests that a revision of the recommendations for the design of public transport contracts may be called for.

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