Do Small Cities Need More Public Transport Subsidies Than Big Cities?

We compare the optimal public transport subsidies for a representative bus corridor in a small city and in a big city in Sweden, derived by assuming optimal pricing, frequency, bus stop spacing, and bus lane policies. The optimal cost-recovery of the buses depends on the relative size of two costs: waiting time and crowding/congestion. In the big city the high crowding cost is dominating, approaching full cost-recovery in the first-best optimum. In the small city the waiting time dominates, implying larger optimal subsidies. The subsidy is also more effective as a redistribution policy in the small city.