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

K. Obeng and R. Sakano

Transport Policy, 2020, vol. 91, issue C, 95-107

Abstract: 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.

Keywords: Transportation; Cost efficiency; Allocative efficiency; Technical efficiency; Input subsidy; Regulations (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.tranpol.2020.03.015

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