Efficiency in the bus transit industry: Measurement and identification of performance determinants

Urban bus transit is an example of a public industry which relies on subsidies for survival. The history of mass transit in the United States reveals that the impetus for government subsidies can partially be attributed to factors exogenous to the industry. Subsidies have created incentives for distorted or sub-optimal input choices among the firms. Previous productivity studies of urban bus transit firms have not properly accounted for the effects of these incentives and the ambiguous nature of optimization decisions inherent in such an institutional environment. Furthermore, transit firms operate as spatial monopolies in almost all urban areas. I argue that in this situation, non-parametric frontier estimates of efficiency are appropriate measures for the analysis of productivity. I also investigate and compare several proposed modifications to the non-parametric estimation techniques. When the efficiency estimation technique is configured to the institutional environment facing this industry not only are some important results from previous studies of efficiency in transportation firms confirmed, but I also show that other factors postulated to explain differences in transit cost efficiency do not help explain differences in measures of technical efficiency.