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The question of subsidies is complex indeed, and their effects on resource allocation can be significant. If all transport technologies were priced so as to cover the marginal social costs imposed by transport users, the efficiency of resource allocation would be improved. In such a world, subsidies would serve two distinguishable ends. First, for technologies characterized by increasing returns to scale, such as public transit, setting price equal to marginal cost would necessarily imply operating deficits . Thus subsidies would be necessary to ensure continuation of vital services. Second, subsidies would serve as a mechanismAmazing vintage bunny and sink co hello sunshine poster for income redistribution, ensuring that those most in need were provided with basic services. Hence efficiency and equity would each be given explicit consideration. Another factor here is the sharing of expenses among various levels of government. Since World War II, the state and federal governments have shouldered increasingly large shares of the financial responsibility as long-distance intercity and interstate routes assumed more importance and the cost of road building outran the revenue-raising powers of local governments. Presently, up to nine-tenths of the cost of an urban freeway can be covered by federal money and the rest by state money.
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