The economic and environmental effects of local bus service deregulation in Britain

  • Peter Romilly

Student thesis: Doctoral Thesis

Abstract

This thesis has three aims. First, to develop the theoretical perspectives necessary for the evaluation of local bus service deregulation in Britain (excluding London). Second, to identify the effects of deregulation if external subsidy to the bus industry had not been reduced. Third, to estimate a number of the externalities, particularly the environmental effects, associated with substitution of bus for car travel.

Criticism of local bus service deregulation has focused on the welfare loss arising from wasteful competition “on the road”. This view is based on the public interest theory o f regulation, which assumes that market failures such as wasteful competition can be remedied by regulators acting to increase social welfare. But the public interest theory is not sufficient to provide an appropriate evaluation framework. Alternatives are public choice theory, Austrian theory and contestable market theory. The thesis provides a full discussion of these alternatives and their relevance to the local bus service market. It concludes that the local bus service market is relatively contestable, although the existence of strategic and non-strategic entry barriers implies a continuing supervisory role for the Office of Fair Trading and the Monopolies and Mergers Commission.

A major empirical problem in the evaluation of local bus service deregulation is that government macroeconomic policy caused significant reductions in external subsidy to the bus industry concurrent with deregulation itself. The thesis uses an econometric model to disentangle the long term effects of subsidy reduction and deregulation on bus fares and patronage for both the metropolitan and non-metropolitan areas. The focus on the long-term effects is an important addition to the research literature on local bus service deregulation, since previous quantitative studies have been able to deal with the short to medium-term effects only. The econometric model shows that, if subsidy reduction had not occurred, deregulation would have resulted in a decrease in bus fares and an increase in bus travel. The associated overall welfare gain is in the region of £6 to £10 million per annum for the period 1986-97.

Part o f the increase in bus travel would come from people substituting bus for car travel. Given the well-publicised and researched external costs o f car use, it is important to know the extent to which these costs are reduced as people transfer from car to bus. The thesis uses a simulation model developed by the author to provide a number o f monetary estimates in this under-researched area. Particidar attention is given to the environmental effects, that is air pollution and global warming, arising from bus for car travel substitution. The simulation model shows that, for bus load factors in the range of 35 to 55 per cent, the total cost reductions from changes in the externalities vary from £640 to £1,234 per annum (1995 prices) for every car ceasing to travel. Exhaust emission costs increase, however, because of the large amounts of particulate matter emitted by bus diesel engines. The policy implication is that bus for car substitution should be encouraged, but particulate emissions from bus engines reduced by improved engine design and the use of low-sulphur fuels.
Date of AwardOct 2000
LanguageEnglish

Cite this

The economic and environmental effects of local bus service deregulation in Britain
Romilly, P. (Author). Oct 2000

Student thesis: Doctoral Thesis