Optimal urban transport pricing with congestion and economies of density

Using a numerical model of the urban transportation sector, calibrated to data for Brussels and for London, we calculate the optimal transport price structure and its effect on the transport equilibrium and on welfare. Removing existing subsidies to public transport and to car parking, internalising transport externalities (mainly congestion) and optimizing the frequency of public transport service increases welfare by approximately 2% of total income in both cities. Optimal prices are higher than current prices in most transport markets, so that optimal transport demand is below current demand. There is a strong shift to public transport in the peak period. Finally, calculations for Brussels of optimal public transport prices for unchanged reference car taxes indicate that only limited welfare gains can be obtained by charging near-zero fares in peak hours.status: publishe