Optimal fare model for inland waterway transport passengers' services

Abstract

In many regions of the Global South, a significant portion of the population depends on inland waterway transport (IWT) to access remote areas. This study develops a microeconomic model to estimate socially optimal fares for passenger transport on IWT routes along Colombia's Magdalena River. Based on operational and demand data, the model identifies the most appropriate cost specification and demand structure, revealing that a linear demand function and a cost model with distance and capacity interactions best represent the system's dynamics. Socially optimal fares, calculated under welfare-maximising conditions, are consistently lower than current fares, which prioritize operator revenue over efficiency. Although optimal fares enhance accessibility and increase consumer surplus, they result in operational losses for providers, indicating the necessity of public subsidies or compensatory mechanisms. The model provides a replicable methodology for evaluating fare structures in similar contexts and offers clear policy implications for achieving equitable and efficient river transport systems.