Microeconomic Model for Designing Public Transit Incentive Programs

Abstract

The purpose of this study is to propose a microeconomic model for optimizing a government-sponsored transit incentive program, where a rider receives a certain monetary reward once a transit trip is completed. The demand pattern considered is many-to-many, which means riders travel from multiple origins to multiple destinations. Travelers are grouped by their socio-demographic characteristics and incentives can be customized to each rider group. Analytical relations are derived from the optimality conditions of the optimization problem and numerical results are conducted to illustrate some important findings. It is found that (a) the eligibility of a certain rider group for transit incentives depends on the magnitude of the cost of public funds, and (b) an increasing profit level diminishes the social welfare. The effect of cross-subsidization among multiple origin–destination pairs is also identified and analyzed.