DP9346 Cost Efficiency and Subsidization in German Local Public Bus Transit

Author(s):	Maria Nieswand, Matthias Walter
Publication Date:	February 2013
Keyword(s):	cost efficiency, endogenous subsidies, heteroscedasticity, local public bus transportation, panel data, stochastic cost frontier
JEL(s):	C13, D24, L92
Programme Areas:	Public Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=9346

This paper examines the impact of endogenous deficit-balancing subsidies on the cost efficiency of local public bus companies by using alternative frontier cost models for panel data. Thereby, the multidimensional performance estimation incorporates the subsidy variable directly. The empirical analysis relies on a unique dataset of 33 German companies observed over a period of up to twelve years. We find a positive effect of endogenous subsidies on the standard deviation of cost inefficiency implying that the range of companies? cost inefficiency increases with the level of subsidies relative to total costs. Further, we find that non-subsidized firms perform better.