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Effects of government regulations and input subsidies on cost efficiency: A decomposition approach

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  • Obeng, K.
  • Sakano, R.

Abstract

This paper studies the effects of regulations, input subsidies, their interactions and technical efficiency on cost efficiency and shows how a firm's cost efficiency relates to society's cost efficiency. It finds that from societal viewpoint, the average US public transit system is 45% cost efficient, a product of 84.4% technical efficiency and 53.5% allocative efficiency. From a transit system's viewpoint, it is 78.6%, 59.5% and 84.4% cost efficient when it internalizes input subsidies, regulations and both respectively. Additionally, it finds that the incentive tier regulation reduces capital-labor allocative distortion, the federal labor protection regulation increases nonlabor-labor allocative distortion and cost inefficiency, the incentive regulation increases cost efficiency, and the bus useful-life regulation increases cost inefficiency through increasing technical inefficiency. Together, in the sample of transit systems studied the regulations studied counteract the capital-labor allocative distortion from the subsidies and reinforce the nonlabor-labor allocative distortion from subsidies.

Suggested Citation

  • Obeng, K. & Sakano, R., 2020. "Effects of government regulations and input subsidies on cost efficiency: A decomposition approach," Transport Policy, Elsevier, vol. 91(C), pages 95-107.
    • Handle: RePEc:eee:trapol:v:91:y:2020:i:c:p:95-107
    DOI: 10.1016/j.tranpol.2020.03.015
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