The optimal speed of rail: Velocity and its impact on fares, frequencies, and subsidies

Abstract

Should governments invest in high-speed rail? Do improvements in the conventional railway network deliver better value for money? This dilemma is among the leading themes of transport policy in many countries around the world, including the US, the UK, China, and several member states of the EU. In this paper we argue that the debate on railway policy should not be degraded into a binary decision between high-speed and conventional rail: we treat speed as a continuous decision variable in the optimisation of intercity transport provision, together with service frequency, pricing, and the level of public funding. Among several other policy-relevant results, we derive an analytical optimality rule for the welfare maximising speed and explore its interplay with service frequency and marginal cost pricing in a series of numerical simulations. Under a reasonable set: of parameters, the model reveals previously unseen characteristics of optimal public transport. provision: when speed is endogenous, the optimal frequency decreases with demand, and high-speed services are associated with higher fares to ensure the efficient use of resources.