Transport Policy 126 (2022) 1–13

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Transport Policy
journal homepage: www.elsevier.com/locate/tranpol

An incentive subsidy mechanism for bus lines based on service level

Qingyu Luo a, *, Xue Bing a, Hongfei Jia a, Jinge Song b
a
College of Transportation, Jilin University, Changchun, 130022, China
b
Changchun Institute of Urban Planning & Design, Changchun, 130000, China

A R T I C L E I N F O A B S T R A C T

Keywords: Reasonable financial subsidies can promote public transport enterprises to raise service level, attract public
Public transit subsidy transport passengers and improve the efficiency of fiscal funds. There are various bus lines that make up the
Service level urban public transit network. In this study, the single bus line is taken as the research object to establish the close
Incentive mechanism
relationship between the service level and the subsidy. An incentive bus subsidy method including measurement
and effect evaluation is proposed. The measurement method is a dual-objective model that considers public
welfare and market characteristics, and aims at maximizing the expected welfare of passengers and enterprises.
The effect evaluation method of the incentive subsidy is designed to manage bus enterprises by the calculation
and comparison of service level indicators. A practical example is presented to verify the effectiveness of the bus
subsidy method, and shows how to regulate the bus enterprises when the bus service level declines. This study
provides a method for the scientific design of incentive bus subsidies, which can encourage bus enterprises to
improve their level of service, and help the government to optimize the decision-making on public transport
subsidy policy.

1. Introduction
More and more countries and cities are choosing the sustainable
development strategy of prioritizing public transport to solve the
problem of traffic congestion. Smerk (1965) pointed out that public
transport enterprises are different from private ones and should be given
subsidies for the maintenance and development of public transport. In
order to make public transport a priority, it is vital to establish a sci­
entific and reasonable financial subsidy system, and give full play to the
role of public transport provider of the government.
Public transport is urban infrastructure, and public welfare is the
basic attribute of bus. Therefore, the layout of bus lines and stops, de­
parture frequency, and fare must meet the demand of passengers as far
as possible. Due to economic efficiency of scale, marginal-cost pricing of
public transport cannot cover its operating cost, which causes losses to
public transport enterprises and affects their sustainable operation
(Hensher et al., 2016). For the public welfare of bus, the government
requires bus enterprises to operate with low fares, but the fare revenue is
not enough to sustain the operation of bus enterprises. If the government
provides full financial appropriations and subsidies, the enterprise losses
caused by low bus fares can be made up, but it is not the optimal solu­
tion. For example, the quota of subsidies may become a temptation for
enterprises to lower service levels and cut expenses to make higher
profits, which means that the government purchases inferior service
products from public transport enterprises at excessively high prices
(Lodi et al., 2016). Therefore, in order to guarantee the welfare of pas­
sengers, the government should regulate public transport services, so
that public transport enterprises can take into account social welfare
while making profits (Ida and Talit, 2015).
Fabbri (1995) held that from the perspective of economics, it is
reasonable to guarantee the operation of public transport by offering
public transport subsidies, but the approach ignores the organization
and regulation of the public transportation enterprises. Therefore, the
government should regulate public transport subsidies and subsidize
public transport enterprises from the perspective of improving public
transport service level and operation efficiency.Through a series of
financial subsidies and preferential tax policies, cities such as London
and Tokyo promoted the implementation of their strategies for devel­
oping public transport as a priority, to guarantee the virtuous cycle of
developing urban public transport (Wall and McDonald, 2007; Shi and
Ye, 2016). Moreover, their governments have established regulatory
authorities for public transport, so as to improve the operation efficiency
of the public transport systems (Hensher et al., 2016). Governments are
only responsible for the construction of public transport infrastructure,

* Corresponding author. Transportation Planning and Management Department, Jilin University, No.5988, Renmin Road, Changchun, China.
E-mail address: luoqy@jlu.edu.cn (Q. Luo).

https://doi.org/10.1016/j.tranpol.2022.07.006
Received 17 February 2021; Received in revised form 4 July 2022; Accepted 10 July 2022
Available online 12 July 2022
0967-070X/© 2022 Elsevier Ltd. All rights reserved.
Q. Luo et al.
while private enterprises are entitled to the operation of bus lines
through tender. Meanwhile, for the purpose of improving the operating
efficiency of public transport enterprises, Singapore launched corre­
sponding evaluation and incentive mechanisms, to encourage public
transport enterprises to adopt diversified ways of operation and improve
service quality (Van Goeverden et al., 2006; Leong et al., 2016). In
China, many cities have adopted a contracting policy based on bus en­
terprise line-operating rights Ling et al. (2019). China’s transportation
department believes that the bus line service level evaluation mecha­
nism is an effective means to promote the continuous improvement of
bus services. Shenzhen, China implemented the assessment of bus line
service level, regularly evaluates conventional bus lines, and determined
the amount of bus subsidy based on the evaluation results of bus service
level. The service level evaluation indicators consist of safety, enterprise
management, operation performance, employee management and other
indicators (Weng et al., 2020).
At present, the effectiveness evaluation of public transport subsidies
mainly uses ex-post evaluation methods, and the results of the evalua­
tion are difficult to be applied systematically in the accounting of public
transport subsidies. Unsuitable subsidy evaluation method may greatly
reduce the government’s influence on the public transport supply, and
cause bus enterprises lack the enthusiasm and drive to improve their
service quality. In addition, unreasonable subsidy amounts may increase
the financial pressure on the government. Therefore, a powerful man­
agement method is needed to encourage enterprises to improve their
operational efficiency and save on operating costs, and reduce the
financial subsidy burden of government at the same time. How to
establish the systematic method of implementing public transport sub­
sidies is the key issue of public transport subsidies.
Under this background, it is crucial to design a reasonable incentive
subsidy and evaluation mechanism, so as to motivate enterprises to
improve services and help the government to make more efficient use of
public transport subsidies. To achieve the objectives, considering the
characteristics of bus service, this study intends to select the main
influencing indicators of public transit service to construct the link be­
tween the service level and the bus subsidy. On the basis of the overall
goal of social benefits, a dual-objective incentive subsidy calculation
model for bus lines will be set up, maximizing the benefits of passengers
and enterprises. Finally, combined with the double-objective model, an
effect evaluation method of the incentive subsidy will be developed to
find out and penalize the bus lines that do not meet the service-level
standard.
As for subsidy mechanism, most of the existing bus subsidies
methods are for the enterprise, not specific bus lines. This kind of sub­
sidy for enterprises ignores the difference between bus lines and the
actual efficiency of enterprises. During the production of public trans­
port, enterprises may focus on the profitable lines, while reducing ser­
vice levels on unprofitable lines. It will eventually lead to a decrease of
subsidy efficiency. Hence, the impact of public transport subsidies on
social welfare can be related to the bus line in question (Zhou et al.,
2008). Taking into account the differences among bus lines, such as
passenger demand, geographical location and line length, subsidies for
bus enterprises cannot be identical. Facing the different profitability of
various bus lines, this study selects the individual bus line as the
research object.
In the rest of this article, Section 2 reviews the literature related to
public transport subsidy, bus service level, and regulatory measures. In
Section 3, the main indicators of bus line service level are introduced, a
dual-objective incentive subsidy measurement model based on service
level is constructed, and the effect evaluation method for the bus line
incentive subsidy is designed. Next, in Section 4, the validity of the bus
line incentive subsidy method is verified with an actual case. Last,
Section 5 summarizes the core content of this study and the points of
further research.
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Transport Policy 126 (2022) 1–13
2. Literature review
Most of the research on the incentive subsidy mechanism of public
transport is from the perspective of regulators, studying how the gov­
ernment or regulatory agencies use particular measurable indicators to
formulate incentive plans. By establishing a connection between key
performance indicators or non-performance indicators of the public
transport system and public transport subsidies, the service level eval­
uation method can be used to optimize the subsidies and guide enter­
prises to improve public transport service level and reduce operating
costs. Key performance indicators include operating mileage, passenger
volume, etc. Non-performance indicators mainly refer to the area
covered by the public transport service, passenger trips, and others
related to socioeconomic development (Hartman et al., 1994). Schmidt
(2001) found that a subsidy mechanism based on the evaluation of
operating mileage will encourage enterprises to provide more opera­
tional mileages to obtain higher subsidies, leading to the blind opening
of too many lines in areas with weak demand for public transport, and
excessive financial expenditure. Therefore, a reasonable subsidy mech­
anism should be designed to encourage public transport enterprises to
optimize their operation and management, reduce operating costs and
increase passenger volume.
Service level is a key factor in bus service operation (Bajada and
Titheridge, 2016). The real beneficiaries of public transport services are
passengers. The government’s goal of regulating the public transport
industry is to provide convenient and efficient transport services for
passengers. Based on the Laffont-Tirole model, Zou et al. (2019)
designed an incentive subsidy scheme to encourage public transport
enterprises to improve the quality of their operations and to maximize
the social benefits by using the most appropriate subsidy amount. Ling
et al. (2019) argued that bus subsidies needed to take into account the
differences in the profitability of different lines, given that bus enter­
prises might lower the level of service on unprofitable lines. They pro­
posed an incentive subsidy mechanism based on bus line service level,
strengthening the idea that bus enterprises can provide efficient services
on different lines. Cheranchery and Maitra (2019) revealed that a higher
service level helps to eliminate subsidy requirements, and can increase
bus passenger flow, thus reducing the burden on the government to
provide public transport subsidies.
The evaluation of bus service level is a process to analyze various
indicators of public transport from the actual operation level and reveal
the operation effect of public transport. The evaluation indicators of the
public transport service level can be classified into several aspects, i.e.,
accessibility, convenience, reliability, comfort, speed, safety, etc.
(Alpopi and Manole, 2012; Suman et al., 2018; Enkhbayar and Chang,
2020). An overview of the bus service attributes is presented in Table 1.
Wang et al. (2012) designed an evaluation system for urban public
transport service regulation and subsidies, providing guidance for ser­
vice management and a subsidy evaluation system for public trans­
portation, and an industry regulation information platform. Considering
the need for regulators to address the issue of moral hazard, government
regulation is very important for maintaining the provision of
high-quality services by public transport enterprises (Ida and Talit,
2015). Incentive subsidies combined with effective regulatory measures
have been found to be preferable to subsidies alone (Ida et al., 2018).
Due to the information asymmetry between the government and public
transport enterprises, when the government is negotiating the subsidy
amount with enterprises, there is a possibility that the enterprises will
overstate their operating costs and income to obtain a higher subsidy
than the actual demand warrants (Zhang et al., 2020).
In the design and management of public transport subsidies, regu­
lators need to take into account the moral hazard of enterprises. That is,
if the service level cannot be verified, enterprises may choose to reduce
their efforts after receiving subsidies. Based on this, Lodi et al. (2016)
designed an incentive mechanism to optimize the contractual relation­
ship between managers and public transport operators. Chen et al.
Q. Luo et al. Transport Policy 126 (2022) 1–13

Table 1 welfare maximization respectively, and found that adjusting fares or

An overview of bus service attributes. departure frequencies could not achieve the optimal social benefits
S. Attributes Measures References alone. Sun et al. (2020) further extended the study by incorporating the
N. cost information asymmetry between the transit authority and operator.
1 Availability Bus stop location, Napiah (2011), Alpopi and How to select the appropriate indicators for assessing the public trans­
Average distance Manole (2012), d’Ovidio et al. port service level, and reducing the information bias between public
between bus stops, (2014), Le-Klähn et al. (2014), transport enterprises and local governments, is the key to the design of
Service hours, Borhan et al. (2014), Hensher regulatory mechanisms.
Departure frequency, (2015), Govender (2016),
Route (network area Mahmoud and Hine (2016),
To summarize, the existing literature leaves several points to be
covered), Machado-León et al. (2017), improved. (1) Most of the existing subsidy methods are targeted at en­
Walking time/distance Suman et al. (2017), Deveci terprises, and have little consideration of the difference in passenger
to stops et al. (2019), Guo et al. (2021) demand and profitability among bus lines. The ambiguity of the subsidy
2 Convenience Accessibility of real time, Govender (2016), Grisé and
target makes it impossible to ensure the subsidy to be used on the lines
Information, El-Geneidy (2017),
Wait time at stop, Machado-León et al. (2017), that need it, and makes it difficult to reflect the fairness of the subsidy.
Transfer time, Lois et al. (2018), Deb and (2) The public transportation system involves the government, public
Number of transfers, Ahmed (2018), Deveci et al. transportation enterprises and passengers, and every participant be­
Transfer distance, (2019), Esmailpour et al. (2020) haves differently and appeals differently. Most of the existing incentive
Boarding and alighting Agyeman and Cheng (2020),
time, Bellizzi et al. (2020)
subsidy models focus much on the relationship between bus enterprise
Convenience in payment behavior and subsidies, while ignoring the fact that passengers, as the
of fare, beneficiaries of subsidy, will change their travel behavior in response to
3 Reliability Punctuality of bus Napiah (2011), Alpopi and the effects of subsidies. (3) Existing studies lack a precise assessment
services, Manole (2012), Nutsugbodo
system for the service quality and operational efficiency of subsidized
Regularity of the service, (2013), Ojo et al. (2014),
Frequency of the d’Ovidio et al. (2014), Jain et al. enterprises. The purpose of subsidizing bus is to improve the quality of
breakdowns (2014), Borhan et al. (2014), service and operational efficiency of enterprises and to maximize the
Hensher (2015), Govender travel needs of residents. The imperfect and hard-to-quantify indicators
(2016), Grisé and El-Geneidy make regulatory authorities impossible to assess the effectiveness of
(2017), Sam et al. (2018),
subsidies accurately, and the evaluation mechanism is difficult to play
Esmailpour et al. (2020),
Agyeman and Cheng (2020) an incentive and punishment role.
4 Comfort Crowding at bus stop, Hensher (2015), Shaaban and In view of the above problems, the contributions of this paper are as
Crowding inside buses, Kim (2016), Leong et al. (2016), follows. (1) The subsidy method based on the line service level is set up,
Frequency of the Machado-León et al. (2017)
not only to urge the enterprises to improve their service level, but also to
breakdowns, Grisé and El-Geneidy (2017),
Comfortability of the Xia et al. (2017), Ruiz et al. balance out the differences in profitability among different bus lines.
seats, (2017), Deb and Ahmed (2018), The subsidies of bus lines that have different numbers of passengers can
Availability of the seats, Lois et al. (2018), Deveci et al. be calculated separately. (2) When calculating the subsidy, we consider
Cleanliness of buses, (2019) the influence of service level on passenger demand, and establish a dual-
Temperature control
objective model of bus line incentive subsidy with the objective of
(ventilation),
Smoothness and freedom maximizing the benefits of passengers and enterprises. The model aims
from jolting to encourage enterprises to improve bus service and increase passen­
5 Speed Travel speed Alpopi and Manole (2012), gers’ bus demand simultaneously. (3) Based on the characteristics of bus
Hensher (2015), Deb and
systems, the main influencing indicators of service level are selected and
Ahmed (2018), Agyeman and
Cheng (2020), Chee et al.
weighted to establish a connection between service level and bus sub­
(2020), Guo et al. (2021) sidy. The evaluation mechanism based on service level can help the
6 Safety Safety in terms of Alpopi and Manole (2012), regulators evaluate the real bus line service level accurately and provide
accidents, Govender (2016), Mahmoud timely feedback on the effectiveness of subsidies.
Safety in bus and at bus and Hine (2016), Leong et al.
stop, (2016), Xia et al. (2017), Ruiz
Personal safety et al. (2017), Machado-León 3. Methodology
et al. (2017), Grisé and
El-Geneidy (2017), Deb and The study provides a comprehensive framework for determining the
Ahmed (2018), Deveci et al.
optimal subsidy and encouraging enterprises to improve their service
(2019)
quality. The optimal subsidy is the result under the maximization of the
benefits of enterprises and passengers in the model. The flow chart of
(2016) found that key performance indicators and punishment measures incentive subsidy method for bus lines is shown in Fig. 1. Firstly,
in the regulation contract would help to maintain the effective perfor­ appropriate indicators are selected to quantify the bus service level.
mance of public transport, and that a regulatory contract and regulatory Secondly, a dual-objective bus line incentive subsidy model is con­
rule should be formulated to jointly constrain the enterprise and the structed with the objective function of maximizing the expected welfare
government when bus subsidies are provided. Hensher et al. (2016) of passengers and bus enterprises. Finally, a method of evaluating the
suggested that the service level and the passenger utility would not effect of the bus line incentive subsidy is developed. According to the
progressively increase as the government subsidy increased. On the service-level indicators selected by the model, the bus lines that do not
contrary, improper subsidies would not only fail to provide incentives meet the service-level standard are punished to prevent bus enterprises
for bus enterprises, but could lead to negative effects. Sun et al. (2016) from increasing their profit by reducing the service level.
proposed a bi-level analytical model to derive the optimal service level
of a single bus route desired by the authority. The incentive subsidy for 3.1. Indicators of bus line service
each passenger trip delivered was also optimized so that the transit
operator can earn a positive profit. Zhang et al. (2018) compared the The ultimate goal of government subsidies for bus lines is to
impact of departure frequency under profit maximization and social encourage enterprises to provide a good service for passengers. The
service level on bus line has a direct impact on the passenger flow.

3
Q. Luo et al. Transport Policy 126 (2022) 1–13

Fig. 1. Flow diagram of bus line incentive subsidy method.

Therefore, the bus line incentive subsidy model in this study takes the
service level and subsidy as the decision-making variable.
In order to evaluate the bus service level, the indicators should be
universal, quantifiable and easy to obtain. Based on the existing evalu­
ation indicator of bus service level as in Table 1, according to the
characteristics and actual situation of bus line, this study selects evalu­
ation attributes from the aspects of accessibility, convenience, reli­
ability, comfort, speed, safety to quantify the bus service level, as shown
Table 2
Indicator system of bus line service level evaluation.
in Table 2. Accessibility is mainly affected by departure frequency,
average stop spacing and service time. Convenience refers to whether
the public transport can provide convenience for resident trip, including
the following indicators: the proportion of complete guiding facilities,
average transfer time and transfer coefficient. Reliability refers to
whether the bus line can reach the destination in the expected time and
the regularity of the service. Comfort can be expressed by bus congestion
degree. In terms of speed, the main evaluation indicator is the travel
speed. Safety refers to the safety of passengers and facilities, which are
measured by accident rate and the mortality rate from accidents. The
bus line service level calculation process can be found in Appendix A.

Criteria Sub-criteria

Availability Departure frequency 3.2. Dual-objective calculation model of bus line incentive subsidy
Average stop spacing
Service time
Convenience The proportion of complete guiding facilities
This research assumes that the urban bus market is a non-monopoly
Average transfer time market, i.e., there are several bus enterprises operating different bus
Transfer coefficient lines in the city. Take a bus line as an example.
Reliability Punctuality rate
Bus breakdown time
3.2.1. The model framework
Comfort The average bus congestion degree during the morning and evening
rush hours
The average bus congestion degree during the off-peak hours (1) Bus line demand function
Speed Travel speed
Safety Kilometer interval of running responsible accident In practice, there is an elastic demand for buses caused by a change in
Mortality rate of running responsible accident
service level, and passenger welfare also has a rigid part and an elastic

4
Q. Luo et al.
part affected by the service level. With an improvement in service level,
passenger flow and passenger utility will increase accordingly. The
relationship between bus ridership q(v) and the service level can be
represented by a logarithmic function Ling et al. (2019), as shown in Eq.
(1).
q(v) = k ln(bv) + μ
where
k indicates the correlation between the bus service level and poten­
tial demand travelers,
b is an adjustment coefficient between bus passenger flow and the
service level,
μ is the rigid demand for bus ridership.
(2) Bus line cost function
Bus enterprise costs are divided into two parts: fixed cost Cg and
variable cost Cf (v). Fixed cost is not affected by the bus service level. The
variable cost is related to the bus service level. Enterprises need more
costs to improve service level. The variable cost of bus line is represented
by a non-linear function, as shown in Eq. (3).
C = Cf (v) + Cg
Cf (v) = ev2
where
e is a cost coefficient.
(3) Passenger utility function
In the welfare economics model, an individual’s utility is based on
the individual’s satisfaction with certain economic activities. Since the
bus incentive subsidy policy is a macro-regulatory model, we assume
that each passenger has the same utility. In fact, passenger utility can be
expressed as the mathematical expectation of passenger utility obtained
from historical information (Tisato, 1998). The utility of a passenger l0
includes the fare utility and the travel time utility(Wang et al., 2021), as
shown in Eq. (4).
l0 = vot⋅t + P
where
t is the average travel time,
vot is the value of travel time,
P indicates the average bus fare.
Production method, the income method, and disaggregate Probit
model are usually used to calculate vot. Considering that many passen­
gers take bus during non-working hours, this model chooses the income
method to calculate vot (Zong et al., 2009).
INC
vot =
T s.t.π ≥ 0
where
INC is the per capita disposable income,
T indicates the per capita working hours.
Then, the passenger utility function is:
V(q) = l0 q(v)
(4) Framework of the model
Due to the dual objectives of enterprises’ revenue and public welfare
in the public transport, the model should be considered from the per­
spectives of both bus enterprises and passengers.
The expected welfare of passengers CS consists of the difference
Transport Policy 126 (2022) 1–13
between passenger utility and actual payment and government tax
shadow costs. It is determined by the utility of a single passenger l0 , bus
fare P, bus traffic mode split rate ρ(v), bus passenger flow q(v) and the
incentive subsidy s(v) given by the government to bus enterprise, as
shown in Eq. (8). According to the passenger flow, the bus traffic mode
split rate ρ(v) can be calculated, as shown in Eq. (9). λ
(1)
CS = V(q) − Pq(v) − ρ(v)s(v) (7)
s(v) = αv (8)
q(v)
ρ(v) = (9)
QOD
where
α is the incentive coefficient for improving service level,
QOD indicates the total residents’ day trips (excluding walking) on
the bus line.
s(v) is the subsidy given by the government to the bus enterprise,
which ultimately originates from taxpayers. Bus traffic mode split rate is
the proportion of bus passengers in the total residents’ day trips on the
bus line. ρ(v)s(v) is the tax paid by bus passengers for the bus line
subsidy.
(2) The bus enterprise’s expected welfare π is determined by operating
income, the operating cost of the bus lines Cg ,the bus service level cost
(3) Cf (v) and the incentive subsidy s given by the government to the bus
enterprise, where operating income is calculated from the bus fare P and
bus passenger flow, as shown in Eq. (10).
π = Pq(v) − Cf (v) − Cg + s(v) (10)
When the regulator subsidizes bus enterprises, the regulator wants to
get better bus service level and pay less money, so as to improve the
benefit of passengers. Bus enterprises pursue the maximization of their
welfare, that is, to obtain more income and pay less cost. The key to
design an optimal subsidy mechanism is to coordinate the goals of the
enterprises and passengers by setting suitable expected bus service level
and subsidies, so that both can obtain satisfactory benefits. The regulator
needs to set the expected bus service level and subsidy to maximize
passengers and enterprise benefits. The ultimate goal of government
subsidies for enterprise is to maximize the social welfare, which include
(4) the expected welfare of passengers and the bus enterprise. At the same
time, bus incentive subsidies are limited by such factors as the amount of
the subsidy, the bus traffic mode split rate and the service level.
Therefore, the impact of those various constraints should be considered
while maximizing the expected welfare for the passengers and bus en­
terprises. To sum up, the calculation method for the bus incentive sub­
sidy can be characterized as a dual-objective model.
maxCS = V(q) − Pq(v) − ρ(v)s(v) (11)
maxπ = Pq(v) − Cf (v) − Cg + s(v) (12)
(5)
(13)
0≤v ≤ 1 (14)
0 < s < smax (15)
The objective function (11) maximizes the expected welfare of pas­
(6) sengers. The objective function (12) maximizes the expected welfare of
bus enterprise. Constraint (13) is non-negative constraint of enterprise
welfare. If the bus enterprise loses money after the government subsidy,
i.e., the bus enterprise has negative revenue, the bus enterprise will not
have enough incentive to continue operating the bus line. So, the en­
terprise’s revenue needs to be greater than zero. Constraint (14) in­
dicates that there should be an upper bound for the bus service level.
According to the calculation of bus line service level, the upper limit of
bus service level is 1 and the lower limit is 0. Constraint (15) ensures that
5
Q. Luo et al.
the amount of the bus subsidy is less than the upper limit of the gov­
ernment’s subsidy budget smax .
(5) Effect Evaluation method of the bus line incentive subsidy
After receiving subsidies from the government, bus enterprises have
the possibility to increase their revenues by reducing the bus service
level. In order to avoid this situation, it is vital for the government to
evaluate the effects on the bus lines of giving incentive subsidies at the
end of the year, and to impose fines on bus lines that do not meet given
service standards. The value of bus line service level is calculated firstly,
and then the value is compared with the expected value. If the bus
service level fail to meet the target requirement, the enterprise should be
fined.
To evaluate the effect of incentive subsidies, the values of evaluation
indicators need to be calculated firstly. If the value of the actual bus line
service level v is larger than or equal to the target value required by the
′
contract, it can be concluded that the required effect of the subsidy has
been achieved, and there is no need to impose a fine on the bus enter­
prise. However, if the bus line fails to reach the target service level, the
enterprise’s actual welfare needs to be calculated according to the actual
value of service level. The bus enterprise’s welfare π is calculated as
′
shown in Eq. (16).
( )
(16)
′ ′ ′
π = P[k ln(bv ) + μ] − e(v )2 − Cg + s vexpected
where
v is actual bus service level,
′
s(vexpected ) is the bus incentive subsidy at the expected bus service
level.
If the service level of the bus line does not achieve required level, the
regulator can enforce the contract by charging a penalty. Set the mini­
mum bus service level acceptable to regulators as vexpected = 0.9v. If the
bus service level is below vexpected , the government has the right to
punish the bus enterprise. The government’s specific fine f imposed on
the bus line is calculated as shown in Eq. (17).
( ′ ) passenger flow μ = 26758 × 0.7 = 18731, The bus line service level in
f = φ π − πexpected (17)
where
π expected is the enterprise welfare at the expected bus service level,
φ is the penalty coefficient.
3.2.2. Solution method
At present, most multi-objective optimization models are solved by
NAGS-II (improved non-inferior sorting genetic algorithm) (Deb et al.,
2002), MOPSO (multi-objective particle swarm optimization algorithm)
(Coello et al., 2004), PSES (the Pareto Archived Evolution Strategy)
(Knowles and Corne., 1999), MOES/D (decomposition based multi-
objective evolutionary algorithm) (Zhang and Li, 2007), etc.
In 2014, MirjSliliS was inspired by the hunting habit of wolves and
then proposed a new meta-heuristic algorithm, grey wolf optimization
(GWO) algorithm (Deb et al., 2002). Further, in 2016, MirjSliliS pro­
posed MOGWO algorithm for the first time which simulates the hunting
behavior of grey wolves in multi-objective search space on the basis of
GWO algorithm (Mirjalili et al., 2016). Comparing with MOPSO and
MOES/D algorithms, the main advantage of MOGWO algorithm is its
relatively high convergence and coverage, which is attributed to the
leader selection mechanism of MOGWO algorithm. The leader selection
mechanism updates the leader’s position continually, thus resulting to
more extensive searches. In summary, MOGWO algorithm is selected in
this study to solve the dual-objective bus line incentive subsidy calcu­
lation model.
The solving steps of the dual-objective bus line incentive subsidy
calculation model based on MOGWO algorithm are shown as follows:
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Transport Policy 126 (2022) 1–13
Step 1: Set the main parameters of MOGWO algorithm, consisting of
maximum iteration number, Pareto archive size and pressure
parameter selected by the leader, etc.
Step 2: Assign randomly to generate the initial population satisfying
the constraint conditions.
Step 3: Use the archive component to sort all the individuals in
Pareto without domination and appoint wolf α, wolf β and wolf δ,
which is corresponding to the most optimal solution, optimal solu­
tion and suboptimal solution at this time
Step 4: Simulate the hunting process of wolves, and change the po­
sition of each grey wolf individual according to the requirement of
objective function.
Step 5: Add the newly obtained Pareto solution to the archive, and
delete the original solution dominated by the new solution. If the
archive size is larger than the specified maximum value, the archive
will be clipped, and then back to Step4; Otherwise, return to Step4
directly.
Step 6: After iteration for tmax times, output the Pareto archive and
obtain the noninferior solution set of the dual-objective bus line
incentive subsidy calculation model.
4. Case study
4.1. Data collection and analysis of case study data
In order to explore the characteristics of the model and the influence
of related parameters on the optimal solution of the model, a case is
presented. Bus No. 306 in Changchun, China is taken as an example to
calculate the line incentive subsidy. Basic information about bus No. 306
can be obtained from the government report, as shown in Table 3.
According to the survey, the bus traffic mode split rate is 36.4% in
2020. The average daily ridership of the bus line No. 306 is 26,758
passengers. The average total number of residents’ day trips (excluding
walking) on this bus line is 73,511. The proportion of passengers who
pay using bus cards is 72.92%, so we assume that the fixed demand in
passenger flow accounts for 70% of the overall demand, so fixed demand
2020 is 0.789 and the Bus line demand function is calibrated to q(v) =
5849 ln(5v) + 18731.
The variable costs, which include fuel costs, maintenance costs, and
indirect operating costs, account for roughly 35% of the total operating
costs, according to the report of bus firms from 2017 to 2020. According
to the data of the bus line service level and operation cost data provided
by the enterprise in Table 4, the relationship between bus subsidies and
service level can be calculated as Cf (v) = 23193.51v2 + 26430.53.
We use the income method to calculate the value of passenger travel
time. In 2020, Changchun’s per capita disposable income was ¥21876,
and the average annual work t per person was 2000 h. According to Eq.
(5), the value of passenger travel time is ¥10.94 per hour. The per capita
travel time of the No. 306 bus line is 0.52 h.
Table 3
Basic information on the No. 306 bus line.
Total length 11.3 km Number of stops 25
First and last departure 5:30–19:55 First and last departure 5:30–20:35
times of the times of the downstream
upstream direction direction
Departure interval 5min–10min Type of bus line Regular
Average daily 26758 Total number of daily 73511
passenger flow residential trips on this
bus line
Daily operating 1123.2 km Number of buses 39
mileage
Full fare ¥1, ¥0.9 (adult IC card), ¥0.5 (student card)
Q. Luo et al. Transport Policy 126 (2022) 1–13

Table 4 service level. In order to prevent bus enterprises from reducing their
No. 306 bus line operating costs and service levels. service levels to obtain higher profits, regulators need to carry out
posterior regulation after subsidies to observe the bus service level v . If
′
Year Bus line service level Annual operating costs(¥)
the line service level v does not reach the reasonable level vexpected , the
′
2017 0.679 1.355 × 107
2018 0.709 1.390 × 107 bus enterprise will be fined. The amount of the fine f is the difference
2019 0.752 1.443 × 107 between the expected optimal profit and the actual profit of the bus
2020 0.789 1.492 × 107
enterprise.
Under the incentive subsidy given to the No. 306 bus line, the real
4.2. Calculation of bus line incentive subsidy values of bus service level indicators can be obtained from surveys. The
actual bus service level falls into one of the following two situations: 1)
This study calculated the daily subsidy for bus lines on a daily basis. failing to achieve the requirement; 2) achieving the requirement. These
The surveyed specific values of the parameters were input into the bus two situations are evaluated as shown in Table 7.
line incentive subsidy calculation model, and then the double-objective It can be seen from Table 6 that, when the actual values of the bus
bus line incentive subsidy was solved. The input and output parameters service level in situation 1) fails to reach the minimum value, the bus
of the model are shown in Table 5. enterprise is fined of ¥1178.95 per day. The bus service level in situation
According to the calculation results, the government needs to sub­ 2) exceeds the minimum value, so the bus enterprise will not be fined.
sidize the No. 306 bus line ¥20884.08 per day. On the premise of given subsidies in advance, if enterprises take
It can be seen from formula (1) and formula (4) that the ridership and measures to reduce their operating costs and bus service level, they can
passenger utility are related to the bus service level, and the value of k in improve their benefits. However, under the evaluation mechanism of
the formulas can reflect the impact of the bus service level on the elastic this study, if the enterprises decrease the service level, the government
demand of passenger ridership and passenger utility. Every bus line has will impose fines on the enterprises that fail to meet the minimum ser­
different busyness degree, so the impact of the change of service level on vice level according to the actual bus service level, and the fined en­
the number of passengers is significantly different. There is much terprises get less welfare.
competition on busy lines, and the change of service level may affect In conclusion, the evaluation mechanism of bus service level can
passengers’ choice of travel modes or bus lines, so the k of busy lines is promote bus enterprises to make continuous improvement. On the one
large. On the contrary, there are few overlapping lines with the not busy hand, the incentive subsidy mechanism can promote operation effi­
bus lines, so the passengers are rigid. Changing the service level of this ciency of public transport enterprises and make the government reduce
kind of lines may rarely affect the change of passenger ridership. At this the expenditure of subsidies. On the other hand, it can improve the
time, the k is small. In order to analyze the changes of subsidies and service level of bus enterprises, and attract more passengers to take bus.
welfare, the bus service levels are studied in three categories by high,
medium and low demand elasticity levels, as in Table 6. 5. Conclusion
From Table 5, it can be seen that busy bus lines get less subsidies, but
the lines have more passengers, so the enterprise can make a profit. The For public welfare reasons and due to the monopoly of urban public
operating income of the not-busy line is few, but the enterprise can transport, it has been decided that bus needs to be operated at a low
therefore get more subsidies. Thus, whether the bus line is busy or not, price, which leads bus enterprises easy to get out of payment balance. In
the enterprise has an incentive to operate the bus line. When the k value order to solve this problem, the government has to provide subsidies for
is too large, the government can reduce the k value by reducing bus bus. Making up for the losses of bus enterprises through subsidies, while
stations or passing through less unprofitable stations. When the k value at the same time encouraging enterprises to improve operational effi­
is too small, the designer can increase the k value by adding stations or ciency, is a difficult problem in the field of public transport subsidy
passing through more profitable stations. Where practical, bus line de­ research.
signers can consider opening more remote routes with fixed demand and In this study, a complete bus line incentive subsidy mechanism is
routes with high demand. proposed, which can measure the optimal amount of bus subsidy and
regulate the bus service level. The main results of our study are as fol­
4.3. Effect evaluation of bus line incentive subsidy lows. (1) According to the characteristics of the bus service level, we
select the indicators that have a great impact on passengers to quantify
According to the calculated amount of bus subsidy, we can calculate the service level of bus lines and reflect the relationship between service
the welfare of No. 306 bus line under different bus service levels, as level and bus subsidy. (2) Based on the subsidy regulation of a single bus
shown in Fig. 2. It can be seen from Fig. 2 that the bus enterprise will get line, with the ultimate goal of maximizing passengers benefit and en­
the maximum welfare πmax at v0 . When the bus service level is more than terprise benefit, this study establishes a double objective incentive
v0 , the enterprise’s welfare decreases with the improvement of bus subsidy calculation model for bus lines, which maximizes the expected
welfare for passengers and the enterprise. It not only reflects the dual
nature of the public transport industry, but also solves the problem of
Table 5
Parameters of the incentive subsidy model for the No. 306 bus line.
different profits on different bus lines by calculating their subsidies
separately. (3) According to the selected bus service level indicators, an
Input parameters
incentive subsidy effectiveness evaluation method is designed, which
k 5849 smin 0 can prevent enterprises from increasing their revenues by lowering their
18731 smax 30000
μ service levels after obtaining subsidies, and provides a specific moni­
P 1 Cg 26430.53
e 23193.51 b 5
toring method for ensuring the rational use of subsidies.
QOD 37364 vot 10.94 According to this model, some suggestions can be put forward for the
φ 2 t 0.52 subsidy mechanism between the government and bus enterprises: (1)
Output parameters From the perspective of the government, passengers’ welfare is related
Bus service Subsidy Amount Expected Expected bus enterprise to the real service level of bus lines, so the government needs to select
level(v) coefficient of bus passenger revenue (π) key performance indicators of service level to investigate the real service
(α) subsidy utility quality of bus transit, and establish the connection between key per­
(s) (CS)
0.913 22871.96 20884.08 179447.35 2729.28
formance indicators and bus subsidies. (2) From the perspective of bus

7
Q. Luo et al. Transport Policy 126 (2022) 1–13

Table 6
Optimal Subsidy results of bus routes under different demand elasticity levels.
k Bus service level(v) Subsidy coefficient (α) Amount of bus subsidy (s) Expected passenger utility (CS) Expected bus enterprise revenue (π)

k = 1000 0.801 29278.36 23451.97 130041.71 2259.00

k = 5000 0.8951 23834.48 21334.24 170262.04 2545.07
k = 0.974 18340.36 17865.34 226033.86 3990.14
10000

Fig. 2. Relationship between benefit and service level of bus enterprise.

demand function determines whether the subsidy increases or decreases.

Table 7
Regulators or bus enterprise should take measures to increase the value
Evaluation of the No. 306 bus line incentive subsidy.
of k, such as adjusting bus lines or adding curbside bus stops. It can not
Criteria Sub- Situation (1) Situation (2) only reduce government subsidies, but also increase enterprise welfare
criteria
Indicator Dimensionless Indicator Dimensionless and social welfare. (5) With the improvement of the service level v, the
value value value value enterprises welfare will decrease. In order to prevent bus enterprises
δ1 ω11 10.00 0.900 20.00 1.000 from lowering their service levels privately to obtain higher profits,
ω12 0.45 0.929 0.45 0.929 regulators need to conduct postmortem supervision after the ex-ante
ω13 15.83 0.905 16.50 0.943 subsidies. (6) The evaluation method of the service level under the
ω21 0.94 0.880 1.00 1.000
incentive mechanism can perfect the subsidy mechanism, enhance the
δ2
ω22 23.32 0.889 17.01 1.000
ω23 0.27 0.460 0.27 0.460 service level of bus enterprises through the subsidy policy, standardize
δ3 ω31 0.79 0.580 0.92 0.840 the behavior of bus enterprises, and improve the welfare utility of
ω32 1.13 0.870 0.78 1.000 passengers.
0.86 0.133 0.83 0.233
δ4 ω41
Although this study has considered some practical factors, there are
ω42 0.67 0.433 0.63 0.567
δ5 ω51 24.96 0.664 28.10 0.873 still some ideal assumptions made, that would be worth improving in the
δ6 ω61 116.12 0.929 119.35 0.955 future. In the bus line incentive subsidy calculation model, several as­
ω62 0.00 1.000 0.00 1.000 sumptions are made about bus passenger flow and the utility of pas­
Actual bus service 0.706 0.830 sengers. Hence, the relationship between the service level and the bus
level(v )
′

passenger flow or the utility of passengers could be further investigated.

Minimum bus 0.822 0.822
service level In the case of multimodal transport or temporary ticket prices, how to
(vmin ) obtain and distribute ticket revenue also needs to be considered. In
Evaluation fine ¥1178.53 per day no fine addition, the factors of road network and road conditions can be taken
findings(f) into account to design more reasonable subsidies measures.

enterprises, with the improvement of the service level beyond expecta­
tion, the enterprises will pay more costs and gain less revenue. There­
fore, a reasonable required service level and penalty mechanism should
be set up to promote bus enterprises to improve service and operation
efficiency. (3) Under the bus line subsidy mechanism, enterprises are
willing to operate not busy lines and maintain high-quality service levels
under the regulation of the government. At the same time, it will
encourage enterprises to take measures to reduce their operating costs,
such as by improving their systems or their equipment to reduce fuel
costs. (4) The analysis of the amount of subsidy shows that the k in the
Author statement
Qingyu Luo:Conceptualization, Methodology,Writing - Review &
Editing. Xue Bing:Writing - Original Draft, Software, Validation. Hon­
gfei Jia:Supervision. Jinge Song:Data Curation, Visualization.
Acknowledgments
This work was supported by the Humanities and Social Science Fund
of Ministry of Education of the People’s Republic of China under Grant
20YJCZH115.

8
Q. Luo et al. Transport Policy 126 (2022) 1–13

Appendix A. Evaluation method of bus service level

1. Indicator quantification

(1) Availability

1) The departure frequency τ refers to the number of departures of a bus line in a unit time, as shown in Eq. (18).
1
τ= (18)
Tb

where
Tb is departure interval.

2) Average stop spacing CL refers to the average distance between stops on a bus line, as shown in Eq. (19).
L
CL = (19)
ns − 1

where
ns is the number of stops on the bus line.

3) Bus service time refers to the time interval between the first and last bus on the bus line, as shown in Eq. (20).
T = TF − TL (20)

where
TF denotes the first vehicle hour,
TL denotes the final vehicle hour.

(2) Convenience

1) The proportion of complete guiding facilities refers to the ratio of the number of existing guiding facilities at the bus stop to the number of guiding
facilities required by the regulations, as shown in Eq. (21).
∑
Ip
I = ∑ × 100% (21)
Is

where
Ip is the number of existing guidance facilities at the site,
Is is the number of guiding facilities required by the regulator.

2) Average transfer time refers to the ratio of the total transfer time to the total number of transfers, as shown in Eq. (22).
∑
Tc
Cw = (22)
Ph

where
Tc is the passenger transfer time,
Ph is the number of transfers.

3) Transfer coefficient refers to the ratio of the number of transfers to the total number of passengers, which is used to indicate how many passengers
in the total number of bus passengers do not direct their destination, as shown in Eq. (23).
W
Cw = (23)
QZ

where
W is the maximum cross-section passenger flow of the bus in the morning and evening rush hours,
QZ is the rated passenger capacity of bus at the maximum cross-section passenger flow during the morning and evening rush hours.

(3) Reliability

1) The punctuality rate is the ratio of the number of trips arriving on time to the total number of trips, as shown in Eq. (24).

9
Q. Luo et al. Transport Policy 126 (2022) 1–13

np
fp = (24)
Np

where
np is the number of bus on schedule,
Np is the total number of bus trips.

2) Bus breakdown time refers to the time occupied by bus operation vehicles when the breakdown affects normal operation, as shown in Eq. (25).
TF
tF = (25)
NV

where
TF refers to the total vehicle breakdown time on the bus line during the statistical period,
NV refers to the total number of buses on the bus line.

(4) Comfort

1) The average bus congestion degree during the morning and evening rush hours is calculated as shown in Eq. (26).
Qmax
rmax = (26)
Q

where
Qmax is the cross-section passenger flow of the bus in the morning and evening rush hours,
Q is the rated passenger capacity of bus at the cross-section passenger flow during the morning and evening rush hours.

2) The average bus congestion degree during the off-peak hours is calculated as shown in Eq. (27).
Qav
rav = (27)
Q

where
Qav is the cross-section passenger flow of the bus in the off-peak hours,
Q is the rated passenger capacity of bus at the cross-section passenger flow during the off-peak hours.

(5) Speed

Travel speed refers to the ratio of the total travel time of the bus to the total length of the bus line is calculated as shown in Eq. (28).
s
vt = (28)
t

where
s is the total length of the bus line,
t is the total travel time.

(6) Safety

1) The kilometer interval of running responsible accident is calculated as shown in Eq. (29).
L
Lac = (29)
Nac

where
L is the total bus mileage,
Nac is the number of traffic accidents in the statistical period.

2) The mortality rate of running responsible accident is calculated as shown in Eq. (30).
NS
fac = (30)
L

where
NS is the number of deaths in responsible accidents in the statistical period.

10
Q. Luo et al. Transport Policy 126 (2022) 1–13

2. Dimensionless evaluation factors

Because the evaluation factors have different characteristics or extensity, and each data of factors dimension and distribution of each are not
identical, it is difficult to directly compare. As results, the original data of evaluation indicators should be dimensionless by range transformation. The
dimensionless processing method of the indicators is selected according to the characteristics of the evaluation index.

1) The dimensionless of the positive index is shown in Eq. (31).

⎧
⎪
⎪ 0 xi ≤ mi
⎪
⎨ xi − mi
ri = mi < xi < Mi (31)
⎪
⎪ Mi − mi
⎪
⎩
1 xi ≥ Mi

where
xi is the value of the evaluation indicator,
mi is the minimum value of evaluation index,
Mi is the maximum value of evaluation index.

2) The dimensionless of the negative index is shown in Eq. (32).

⎧
⎪
⎪ 1 xi ≤ mi
⎪
⎨M − x
(32)
i i
ri = mi < xi < Mi
⎪
⎪ M − mi
⎪ i
⎩
0 xi ≥ Mi

3) The dimensionless of the moderate index is shown in Eq. (33).

⎧ q1 − xi
⎪
⎪ 1− , Yold ​ < q1
⎪
⎪ max{q1 − mi , Mi − q2 }
⎪
⎨
ri = 1​, Yold ​ ∈ [q1 , q2 ] (33)
⎪
⎪
⎪
⎪ x i − q 2
⎪
⎩1 − , Yold ​ > q2
max{q1 − mi , Mi − q2 }

where
[q1 , q2 ] is the optimal interval of evaluation indicator.
Based on the actual operation situation of bus enterprises, the upper and lower bounds of bus service level evaluation indicators are shown in
Table 8. Measuring the quality of public transportation systems and ranking the bus transit routes using multi-criteria decision-making techniques.

Table 8
the upper and lower bounds of bus service level evaluation indicators

Criteria Sub-criteria Lower bound Upper bound

Availability Departure frequency 0 20

Average stop spacing (km) 0.5 0.8
Service time (h) 0 17.5
Convenience The proportion of complete guiding facilities 0.5 1
Average transfer time (s) 20 50
Transfer coefficient 0 0.5
Reliability Punctuality rate 0.5 1
Bus breakdown time (h) 1 2
Comfort The average bus congestion degree during the morning and evening rush hours 0.6 0.9
The average bus congestion degree during the off-peak hours 0.5 0.8
Speed Travel speed (km/h) 15 30
Safety kilometer interval of running responsible accident (km) 0 125
mortality rate of running responsible accident 0.5 5

3. Weights of evaluation factors

This study uses AHP to determine the weight of each indicator, compares all elements of this layer according to the prescribed standards at each
layer, constructs the judgment matrix, calculates the judgment matrix, sorts and checks the consistency of the layers, and finally carries out the overall
ranking of the layers, so as to obtain the weight of each element of this layer relative to the criteria of this layer. The final calculation results are shown
in Table 9.

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Q. Luo et al. Transport Policy 126 (2022) 1–13

Table 9
wt of each evaluation indicator system of bus line service level

Criteria Notation Weight Sub-criteria Notation Weight

Availability δ1 0.280 Departure frequency ω11 0.569

Average stop spacing ω12 0.127
Service time ω13 0.304
Convenience δ2 0.107 The proportion of complete guiding facilities ω21 0.236
Average transfer time ω22 0.435
Transfer coefficient ω23 0.329
Reliability δ3 0.175 Punctuality rate ω31 0.748
Bus breakdown time ω32 0.252
Comfort δ4 0.144 The average bus congestion degree during the morning and evening rush hours ω41 0.706
The average bus congestion degree during the off-peak hours ω42 0.294
Speed δ5 0.190 Travel speed ω51 1.000
Safety δ6 0.104 kilometer interval of running responsible accident ω61 0.425
mortality rate of running responsible accident ω62 0.575

4. Calculation of indicators of bus line service level

To sum up, the value of bus service level is the sum of the corresponding weight values of all related factors, as shown in Eq. (34).
∑
n ∑
m
v= δi ωij rij (34)
i=1 j=1

∑
m
s.t. ωij = 1, ​ ∀ωij ≥ 0, ​ i = 1, 2, ⋯, n, ​ j = 1, 2, ⋯, m (35)
j=1

∑
n
δi = 1, ​ ∀δi ≥ 0, ​ i = 1, 2, ⋯, n (36)
i=1

where
v is the bus line service level,
δi is the criteria indicator weight,
ωij is the sub-criteria indicator weight.

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