Bilevel Programming Model of Private Capital Investment in Urban Public Transportation: Case Study of Jinan City

Abstract

Increasing public transportation subsidies have created fiscal pressures for governments. To ease this financial pressure, Chinese government strongly encourages private capital investment in public transportation. However, previous private capital investments in public transportation operations have largely failed, mainly due to low ticket fares that cannot support sustainable operations. To address this issue, several previous research projects have developed methods to facilitate private capital investment. The majority of the research focuses on qualitative analysis and value for money analysis. Our research proposed a new method of private capital investment in public transportation operations based on the concept of “passenger value.” The feasibility of the proposed method of private investment was analyzed quantitatively by constructing a bilevel programming model. The model was verified based on a sample analysis of Jinan city traffic. Results showed that effective private capital investment increases the total societal benefit from the public transportation system and additionally that the investment method considering “passenger value” is superior to the traditional one. A quantitative tool was provided by the model to evaluate private capital investment effects, design investment policies, and develop further research.

Quantifying a Financially Sustainable Strategy of Public Transport: Private Capital Investment Considering Passenger Value

“…In this research, the definition of private capital in [3] is adopted; private capital means all domestic capital excluding state/government investment capital. Private capital investments in the transportation industry mainly concentrate in three areas: transportation services, infrastructure construction, and the emerging transportation industry [42].…”

“…Private capital investment in urban public transport is limited in scope [3] to mainly infrastructure construction and operations. Since investments in construction are well-addressed, investments in operations are particularly discussed in the following sections.…”

“…Consumer surplus is the monetary gain obtained by consumers because they want to purchase a product or some service for a price that is less than the highest price they are willing to pay. Producer surplus is the benefit gained by selling a product at a market price that is higher than the lowest price that producers would be willing to sell for [3]. Herein, the public transport enterprise surplus equals the benefit minus cost, and the traveler surplus equals the fee public transport travelers are willing to pay minus the actual cost.…”

“…If the passenger value is fully considered, it should be beneficial for both public transport companies and passengers. After considering passenger value fully, public transport companies can gain more profits besides ticket fees, e.g., more profits of cash flow in accounts of public transport cards (Table 2), because the profits of cash flow in accounts of public transport cards can change from bank interest to investment profit [3]. In many countries there is no current interest, the current interest rate in China is about 0.3%.…”

“…Other non-financial costs and benefits are neglected in the quantitative assessment [38]. Factually, the value-of-time (VOT) of passengers is also important due to public necessity of transport [3]. VOT should be considered because the travel time is different before and after providing public transport services.…”