On incentives and optimal effort to improve bus transit performance


K. Obeng

Document Type

Journal Article

Publication Date


Subject Area

mode - bus, place - north america, economics - subsidy, operations - performance, planning - service improvement


Bus transit systems, incentive subsidy, optimal effort, cost function, benefit


This paper studies incentive-based subsidy to transit systems to improve performance. It derives a formula for optimal effort that equalizes marginal cost and marginal benefit and derives some principles from it among which is that the larger the value of a transit system’s performance criterion the larger the effort it will exert to improve it. Next, using a constrained cost minimization approach it derives a nonlinear cost function that includes optimal effort and estimates it using an unbalanced panel data of single mode U.S. bus transit systems. The results show that optimal effort is the equivalent of seven full-time employees (15,243 labor hours) per year and in real terms it results in 0.6% cost saving (US$198,331) and US$836,796 in incentive subsidy per observation. The implications of these findings are examined.


Permission to publish the abstract has been given by Taylor&Francis, copyright remains with them.