A Comment on "Subsidization of Urban Public Transport and the Mohring Effect"

Van Reeven (2008) argues that the Mohring effect is not relevant to the determination of transit subsidies because a profit-maximizing monopolist would supply frequencies that are the same as, or greater than, those that are socially optimal. We find that his results depend on the reduction or elimination of the effect of fares on demand, causing optimal prices to be indeterminate within broad ranges. Consequently, his model is an unsatisfactory tool for discussing subsidies in general, and the optimal combination of fare and frequency in particular.