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The Effect of Privatization on Public Transit Costs

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  • Karlaftis, Matthew
  • McCarthy, Patrick

Abstract

In an effort to reduce operating deficits, increase productivity, and improve the quality of services, the public transit sector has been moving away from public ownership and operation and towards a franchising arrangement whereby a local government authorizes a private firm to manage and operate the city's public transit system. Profit maximization considerations imply that private managers have stronger incentives for cost efficiency. One such example is the city of Indianapolis which began privatization efforts in its transit operations in 1996. Based upon monthly data from January 1991 through March 1997, this study examines the effect of privatization on the city's cost of providing mass transit. The primary implication of the study is that Indianapolis has experienced an annual 2.5% reduction in operating costs since privatizing the management of its public transit system. Copyright 1999 by Kluwer Academic Publishers

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  • Karlaftis, Matthew & McCarthy, Patrick, 1999. "The Effect of Privatization on Public Transit Costs," Journal of Regulatory Economics, Springer, vol. 16(1), pages 27-43, July.
    • Handle: RePEc:kap:regeco:v:16:y:1999:i:1:p:27-43
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    1. Cinzia Daraio & Marco Diana & Flavia Di Costa & Claudio Leporelli & Giorgio Matteucci & Alberto Nastasi, 2014. "Efficiency and effectiveness in the urban public transport sector: a critical review with directions for future research," DIAG Technical Reports 2014-14, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    2. Karlaftis, Matthew G. & Tsamboulas, Dimitrios, 2012. "Efficiency measurement in public transport: Are findings specification sensitive?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(2), pages 392-402.
    3. Gkritza, Konstantina & Karlaftis, Matthew G. & Mannering, Fred L., 2011. "Estimating multimodal transit ridership with a varying fare structure," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(2), pages 148-160, February.
    4. Karlaftis, Matthew G., 2004. "A DEA approach for evaluating the efficiency and effectiveness of urban transit systems," European Journal of Operational Research, Elsevier, vol. 152(2), pages 354-364, January.
    5. Paul H. Jensen & Robin E. Stonecash, 2004. "The Efficiency of Public Sector Outsourcing Contracts: A Literature Review," Melbourne Institute Working Paper Series wp2004n29, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    6. Ahmet Kara, 2009. "An applied stochastic model of the quality–quantity trade-off in the public health care sector," Quality & Quantity: International Journal of Methodology, Springer, vol. 43(2), pages 277-289, March.
    7. Avenali, Alessandro & Boitani, Andrea & Catalano, Giuseppe & D’Alfonso, Tiziana & Matteucci, Giorgio, 2016. "Assessing standard costs in local public bus transport: Evidence from Italy," Transport Policy, Elsevier, vol. 52(C), pages 164-174.
    8. Clifford Winston, 2000. "Government Failure in Urban Transportation," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 403-425, December.
    9. Dianshuang Wang & Xiaochun Li, 2020. "Privatization in Vertically Related Markets: Insights from a General Equilibrium Approach," Hacienda Pública Española / Review of Public Economics, IEF, vol. 234(3), pages 3-21, September.
    10. Paul H. Jensen & Robin E. Stonecash, 2005. "Incentives and the Efficiency of Public Sector‐outsourcing Contracts," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 767-787, December.
    11. Appelbaum, Elie & Berechman, Joseph, 1991. "Demand conditions, regulation, and the measurement of productivity," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 379-400, February.
    12. Yu, Ming-Miin & Fan, Chih-Ku, 2008. "The effects of privatization on return to the dollar: A case study on technical efficiency, and price distortions of Taiwan's intercity bus services," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(6), pages 935-950, July.
    13. Zhang, Chunqin & Xiao, Guangnian & Liu, Yong & Yu, Feng, 2018. "The relationship between organizational forms and the comprehensive effectiveness for public transport services in China?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 783-802.
    14. Karlaftis, Matthew G., 2003. "Investigating transit production and performance: a programming approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 37(3), pages 225-240, March.
    15. Zhang, Chunqin & Juan, Zhicai & Xiao, Guangnian, 2015. "Do contractual practices affect technical efficiency? Evidence from public transport operators in China," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 80(C), pages 39-55.

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