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The Intended Relationship Between Federal Operating Subsidy and Cost

Author

Listed:
  • Kofi Obeng

    (North Carolina A&T State University)

  • Golam Azam

    (North Carolina A&T State University)

Abstract

There are many studies, including those of J. Pucher et al. and S. C. Anderson, that found higher costs to be associated with transit operating subsidies. However, none of them investigated the effect of state and local federal subsidy formulas on cost efficiency of transit operations. In this article, the subsidy-cost relationship is derived by using the federal operating subsidy formula directly within the transit firm's optimizing framework, and the resulting system of equations is estimated. Our results demonstrate that there exists a positive cost-subsidy relationship that conforms with the previous studies and that the formula results in very little capital bias.

Suggested Citation

  • Kofi Obeng & Golam Azam, 1995. "The Intended Relationship Between Federal Operating Subsidy and Cost," Public Finance Review, , vol. 23(1), pages 72-94, January.
    • Handle: RePEc:sae:pubfin:v:23:y:1995:i:1:p:72-94
    DOI: 10.1177/109114219502300103
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    References listed on IDEAS

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    1. Frankena, Mark W., 1987. "Capital-biased subsidies, bureaucratic monitoring, and bus scrapping," Journal of Urban Economics, Elsevier, vol. 21(2), pages 180-193, March.
    2. Talley, Wayne K., 1988. "An economic theory of the public transit firm," Transportation Research Part B: Methodological, Elsevier, vol. 22(1), pages 45-54, February.
    3. Kim, Moshe & Spiegel, Menahem, 1987. "The effects of lump-sum subsidies on the structure of production and productivity in regulated industries," Journal of Public Economics, Elsevier, vol. 34(1), pages 105-119, October.
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    Cited by:

    1. Obeng, K. & Sakano, R. & Naanwaab, C., 2016. "Understanding overall output efficiency in public transit systems: The roles of input regulations, perceived budget and input subsidies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 89(C), pages 133-150.
    2. 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.
    3. Obeng, Kofi, 2010. "The Deadweight Costs of Operating and Capital Subsidies," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 49(1).
    4. 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.
    5. Obeng, K., 2010. "The Deadweight Costs of Public Transit Subsidies," 51st Annual Transportation Research Forum, Arlington, Virginia, March 11-13, 2010 207240, Transportation Research Forum.

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