Cost Functions and Efficiency Estimates of Midwest Bus Transit Systems

Document Type

Journal Article

Publication Date


Subject Area

mode - bus


Stochastic frontier analysis, Regression analysis, Regression, Midwestern States, Midwest United States, Least squares method, Intracity bus transportation, Estimating, Economic efficiency, Cost models, Cost functions, Bus transit


Short-run variable cost functions are estimated with the use of a sample of 68 bus systems in the U.S. Midwest operating in the 1996 to 2002 period. Variable costs are specified as functions of outputs, input prices, bus stocks, and network size. Various output, input price, network, capacity, and disturbance specifications are examined. The cost functions are estimated with the use of ordinary least squares, switching regression, seemingly unrelated regression, and stochastic frontier cost models. The results indicate constant returns with vehicle outputs, increasing returns with passenger outputs, inelastic input demands, and substantial technical efficiencies that vary by firm and by state.