The Impact of Corporatization on the Cost of Bus Transit Systems

The purpose of this paper is to analyze the cost structure of a sample of Italian municipal bus companies, in order to investigate the impact of the corporatization process on production costs and, by measuring economies of scale and density, to evaluate the economic rationality of side-by-side competition in the local public transport sector. To that purpose, a translog cost frontier model is estimated using a panel of 33 bus companies observed during the period 1993-2002. The results show that the transformation of a municipal company into a corporation or an autonomous company has a reducing impact on costs. Moreover, the presence of both scale and density economies suggests that franchised monopolies, rather than side-by-side competition, is the most efficient form of production organization for public transit systems.