Regulatory and Environmental Effects on Public Transit Efficiency. A Mixed DEA-SFA Approach

Buzzo Margari Beniamina (), Erbetta Fabrizio (), Carmelo Petraglia () and Massimiliano Piacenza ()
Additional contact information
Buzzo Margari Beniamina: HERMES, Center for Research on Regulated Services,Fondazione Collegio Carlo Alberto, Moncalieri (TO), Italy, http://www.hermesricerche.it
Erbetta Fabrizio: University of Eastern Piedmont “Amedeo Avogadro”, Faculty of Economics, Novara, Italy; Ceris-Cnr and HERMES, Moncalieri, (TO), Italy;, http://www.eco.unipmn.it/

CERIS Working Paper from Institute for Economic Research on Firms and Growth - Moncalieri (TO)

Abstract: The aim of this paper is to account for the impact of statistical noise and exogenous regulatory and environmental factors on the efficiency of public transit systems in a DEA-based framework. To this end, we implement a three-stage DEA-SFA mixed approach based on Fried et al. (2002) using a 1993-1999 panel of 42 Italian public transit companies. This allows us to decompose input-specific DEA inefficiency measures into three components: exogenous effects, pure managerial inefficiency, and statistical noise. First, the initial evaluation of producer performance is carried out using conventional variable returns to scale DEA (Banker et al., 1984). Second, a SFA approach (Battese and Coelli, 1992) is used to regress single input slacks on subsidies regulation (cost-plus versus fixed-price contracts) and a set of environmental variables including network speed and user density. Finally, third stage re-runs DEA on inputs purged of both exogenous effects and statistical noise. Results are such that adjusting for the type of regulatory scheme, environmental conditions, and statistical noise increases average efficiency in the industry and reduces dispersion among firms. Furthermore, the implementation of fixed-price subsidies is found to enhance efficiency in the usage of “drivers” and “materials and services” inputs. Such a result sheds some light on the determinants of input-specific efficiency differentials in the industry, improving the existing evidence on mean overall cost efficiency (e.g. Gagnepain e Ivaldi, 2002; Piacenza, 2006). As a policy implication, it is confirmed the relevance of regula tion aimed at replacing cost-plus subsidization mechanisms with high-powered incentive contracts as well as improving operating conditions of public transport networks.

Keywords: Public transit systems; Regulation; Environmental effects; Statistical noise; Data Envelopment Analysis (DEA); Stochastic Frontier Analysis (SFA) (search for similar items in EconPapers)
JEL-codes: C44 D21 L50 L92 R41 (search for similar items in EconPapers)
Date: 2006-12

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Journal Article: Regulatory and environmental effects on public transit efficiency: a mixed DEA-SFA approach (2007)
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