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Effects of contracting on cost efficiency in US fixed-route bus transit service

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  • Iseki, Hiroyuki

Abstract

Contracted service comprises a significant proportion of total operating expenses in the provision of fixed-route bus transit service in the US. Despite its importance, the literature on the economic effects of transit service contracting has been limited to only a few studies since the mid-1990s, and is inconclusive due to problems with the nature and methodology of the past studies. This paper examines how the cost efficiency of providing fixed-route bus transit service varies by the degree of contracting. I make several improvements to previous studies and conduct a regression analysis that: (1) addresses the endogeneity problem between the contracting decision and cost efficiency, (2) differentiates between agencies that contract out only a portion of service from those that contract out all service, (3) takes into account the moderating effects of several factors on the effect of contracting on cost efficiency, and (4) uses a relatively larger set of cross-sectional time-series data constructed from the National Transit Database from 1992 to 2000. The analysis results show that the combined effects of contracting lower operating costs by $4.09 and $2.89 per vehicle hour for partial and full-contracting agencies, respectively, in the average case. These average cost savings translate into 7.8% and 5.5%, using the average operating cost per vehicle hour of $53.06. However, this improvement is not universal, because the effects of contracting on cost efficiency vary by factors such as peak-to-base ratio, agency size, the wage gap between bus operators in the public and private sectors, and agency type.

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  • Iseki, Hiroyuki, 2010. "Effects of contracting on cost efficiency in US fixed-route bus transit service," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(7), pages 457-472, August.
    • Handle: RePEc:eee:transa:v:44:y:2010:i:7:p:457-472
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    Cited by:

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    3. 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.
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    5. Fredrik Andersson & Henrik Jordahl & Jens Josephson, 2019. "Outsourcing Public Services: Contractibility, Cost, and Quality," CESifo Economic Studies, CESifo Group, vol. 65(4), pages 349-372.
    6. Sheng, Dian & Meng, Qiang, 2020. "Public bus service contracting: A critical review and future research opportunities," Research in Transportation Economics, Elsevier, vol. 83(C).
    7. Morales Sarriera, Javier & Salvucci, Frederick P. & Zhao, Jinhua, 2018. "Worse than Baumol's disease: The implications of labor productivity, contracting out, and unionization on transit operation costs," Transport Policy, Elsevier, vol. 61(C), pages 10-16.
    8. Obeng, K., 2019. "Public transit cost efficiency studies: The impact of non-contracting regulations," Transportation Research Part A: Policy and Practice, Elsevier, vol. 126(C), pages 247-258.
    9. Nayan, Ashish & Wang, David Z.W., 2017. "Optimal bus transit route packaging in a privatized contracting regime," Transportation Research Part A: Policy and Practice, Elsevier, vol. 97(C), pages 146-157.

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