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

Document Type

Journal Article

Publication Date


Subject Area

place - north america, mode - bus, economics - subsidy, organisation - regulation


Transportation, Cost efficiency, Allocative efficiency, Technical efficiency, Input subsidy, Regulations


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.


Permission to publish the abstract has been given by Elsevier, copyright remains with them.


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