In this paper we study the joint optimisation of transport prices and supply decisions of urban transport services, taking into account all relevant external effects. First a simple theoretical model is developed that clearly identifies the different channels through which demand and supply factors affect the marginal social costs of transport services. Optimal pricing and supply rules are derived, both in the presence and in the absence of budgetary constraints. A detailed numerical simulation analysis for Belgian urban areas then illustrates the empirical implications of the optimality rules. We calculate optimal prices for private and public transport in peak and off-peak periods under various assumptions, we consider optimal public transport supply of vehicle-kilometres in both periods as well as optimal fleet size, and we look at the optimal supply of road infrastructure. We carefully interpret the implications of optimal pricing and supply decisions for a number of operational characteristics of the public transit system, such as occupancy rates, budgetary outcomes, and productivity. (C) 1998 Elsevier Science B.V.
