Paratransit Services for Efficiency: Examining the Potential for Taxis to be Included in Subsidized Market
(Previous title) Favored Welfare Programs and Negative Externalities: The Effect of Subsidized Transportation for the Elderly on Demand and Wages for Taxi Services*

This study examines the inefficiency of subsidized paratransit transportation services for the elderly. In the open-entry market, there is a possibility of an oversupply of vehicles and a deadweight loss. Our empirical results reveal that expanding paratransit vehicles reduced taxi usage with fewer public subsidies by 2.7%. To improve the efficiency of the paratransit transportation market, we propose using unoccupied taxis and regionally integrating paratransit services with smart dispatching algorithms. If taxis could provide the complementary services as dedicated paratransit vehicles, it is estimated that the taxi driver’s annual income would increase by 4.2%.

* We revised this discussion paper with the new title in March 2023. This paper was previously circulated under the title "Favored Welfare Programs and Negative Externalities: The Effect of Subsidized Transportation for the Elderly on Demand and Wages for Taxi Services."

This is the English version of the Japanese Discussion Paper (19-J-053) with some additional information and changes.