Optimal Fares Regulation for Britain?s Railways

Optimal Fares Regulation for Britain?s Railways


G Whelan, J Toner, M Wardman, C Nash, R Batley, ITS, University of Leeds, UK


An evaluation of fares regulation options for Britain?s railways using a new ticket choice model.


This paper presents the findings on an evaluation of fares regulation options carried out on behalf of the Strategic Rail Authority. The main objective of the study was to provide quantitative and qualitative analysis to assess the impact of changes to fares regulation and ticketing restrictions in two passenger markets. The paper addresses a number of sub-objectives:

? To provide an economic framework for developing fares and capacity use policy options;
? To develop a modelling capability to provide evidence on and test the impact of these policy proposals on demand, revenue, overcrowding and economic benefits; and
? To develop and test a set of plausible policy options.

To these ends the paper draws on economic theory, current regulatory and pricing practice in three industry sectors, a series of in-depth interviews with operators and a large scale survey of passenger preferences culminating in the development and application of econometric models of passenger behaviour in two case study settings.

The paper describes the calibration and application of a choice model that is used to explain and predict passengers? choice of ticket and departure time under a range of plausible policy options. The model is calibrated to data from a large scale passenger survey comprising some 16,102 choice observations from a series of stated preference interviews with 2,238 passengers on 14 different rail flows. Each of the ticket options was described in terms of six explicit attributes: fare, in-vehicle time, outward and return travel restrictions, advance purchase requirement, crowding and seat availability, and specific add-ons (none, car parking, car parking and Travelcard, or car parking, Travelcard and tea & coffee). The overall structure of the model permits the overall size of the rail market to expand or contract in response to changes in fares and ticketing restrictions and allows for the allocation of demand between the range of ticket types.

The model is applied to two case studies: one for relatively short distance London and the South East traffic and the other for inter-urban traffic. The objective of the case studies was to demonstrate the properties of the model and implied elasticities, and test a range of policy scenarios to illustrate and provide policy guidance. These policy options were based on alternate fares basket specifications varying the range of products included within the basket, the value of the basket and the value of individual fares within the basket.

In terms of economic efficiency, it is undesirable to impose maxima on the increase in any particular fare within the basket. In the examples we have run for both short and long distance flows, in most cases imposing a 6% maximum on the increase in any individual fare both reduces revenue and increases welfare loss, by preventing the loading of the increase on to the least elastic ticket types and actually reducing some of the more elastic fares.

For the same reason, it is desirable to define the basket as widely as possible. Whatever additional revenue it is desired to raise, it is clear that under a regulatory system that imposes a single price cap on a basket of fares, this may be raised with less loss of welfare from a widely defined basket than from a narrowly defined one.


Association for European Transport