Role of Public Finance for Social Innovation in Mobility - From the French Japanese comparison of low-floor tram vehicle cases

Publication Type:

Conference Paper


Gerpisa colloquium, Bordeaux (2024)


Social innovation


[The purpose of research]
The purpose of this paper is to clarify who should bear the costs of social innovation, taking into account the characteristics of the costs involved. For the purposes of this paper, social innovations are defined as technological developments that are beneficial to society but whose development costs cannot be recovered in the market. An example is a social innovation that improves the welfare of disabled people in the transport sector. Social welfare policy requires public authorities to provide financial support to the beneficiaries of this type of innovation. Therefore, development costs for social innovations for welfare purposes require public finance intervention, as they cannot be added to the price and market failures occur.
This paper focuses on the technological development and diffusion of ultra-low-floor LRVs and examines the impact of public institutional financial support on encouraging the development of social innovations and on the diffusion of vehicles.
[Research Methodology]
First, a theoretical discussion is given on the cost-sharing of social innovations, based on the fee theory of transport economics on railways. Then, as a case study, the development and diffusion of low-floor tram vehicles is compared between the Japanese and French cases.
Under market rules, if the beneficiary is limited, they should bear the costs, and if the marginal cost to a particular user is high, that user should pay the cost. Example: business class and first-class passengers on airplanes must pay higher fees because their marginal costs are higher than those of other passengers. Since the beneficiaries of barrier-free access are essentially disabled people. Since the marginal cost of barrier-free access rises with it, market rules make it reasonable for disabled people to bear the cost of expensive. Barrier-free access is a classic market failure, and the cost-sharing of transport barrier-free access must be defined as 'income redistribution' in terms of cost-sharing.
As public transport is characterized as a cost-diminishing industry where the average cost decreases as the supply increases, the optimum fare level that satisfies profitability is a fare equal to the average cost. As there is no surplus available for investment in barrier-free access, the cost of barrier-free access will directly lead to an increase in the average cost. Adding barrier-free accessibility to fares would place the same burden on all passengers. This is a regressive burden that imposes a heavy burden on low-income able-bodied people.
Transport operators have no incentive to develop barrier-free developments under market rules. Because they cannot make a profit from their investments. Operator can benefit from barrier-free investments if they pay higher prices. However, society demands that disabilities' fees are reduced.
Under market rules, increasing fares for all passengers would allow transport operators to get revenue for barrier-free investments. However, the following disadvantages exist. First, passengers who do not benefit from barrier-free access would see their welfare reduced by the price increase. Second, transport rights are violated in economic terms, with passengers on low incomes giving up the use of the service. Third, the price increase causes passengers to shift to other modes of transport (e.g. private cars and bicycles), putting them at a competitive disadvantage in the market.
The case study compares the case of Japan, where trams are costed under market rules, with the case of France, where a larger proportion of the cost is borne by the public purse. Based on the aforementioned theoretical considerations, the analysis will focus on the burden of development costs in the two countries and the ability of the operators to purchase vehicles.
Japanese Government passed the Barrier-Free Transportation Act in 2000, obliging railway operators with high passenger volumes to make their stations and rolling stock barrier-free. Many tram operators in Japan have small revenues and find it difficult to cover the development and purchase costs of low-floor vehicles themselves. The Japanese Government made the mechanism that was introduced whereby half of the purchase cost of low-floor tram vehicles is supported by public institutions. The support measures have led to all tram operators having low-floor vehicles, but not all of them have been replaced.
France is a leading country of Tramway innovation. Since 1985, about 30 cities have introduced modern Tramway. There are many good practices with new technology. The innovation of French Tramway is not only technical innovation but also Service Innovation and Political Innovation.
Tramway in Grenoble is Origin of Barrier Free Tramway vehicle. Grenoble City introduced tramway to solve Air Pollution by Automobile in 1987. Disability residents demanded to city to introduce “Barrier Free Vehicle” for the security of their Transportation Rights. So the vehicle of Grenoble is type 70% Low Floor. The impact of Grenoble Tram is very huge that the vehicle standard of not only tramway but also city bus changed “Low Floor (Non Step Entrance)”
In France, the 1982 Basic Law on Transport (LOTI) defined the guarantee of transport rights as a public sector obligation. The enactment of the LOTI coincided with the expansion of the transport tax. Most municipalities (AOM) are now able to collect the tax, which can be used freely. The guarantee of transport rights placed an obligation on the public sector to promote barrier-free access. At the same time, the expansion of the transport tax made it possible for the public sector to secure financial resources to promote barrier-free access.
Today, the entire fleet of trams in France is barrier-free.
[Practical implication]
Under market rules, transport operators have no incentive to promote barrier-free access. If transport operators do not want to, vehicle manufacturers also have no incentive to develop them. In the case of Grenoble, France, the public sector was able to introduce ultra-low-floor vehicles because it was obliged to guarantee transport rights and had sufficient financial resources.
It can be said that the set of rights and financial resources for Public Sector, example Municipalities, encouraged non-profit social innovation.

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