The Influence of Ownership on the Cost of Bus Service Provision in Switzerland

Einfluss der Eigentümerstruktur auf die Kosten von schweizerischen Busbetrieben

Investigators
Massimo Filippini, Paola Prioni

Time Frame
1999 - 2000

Funding
Independent research project

Abstract
In deregulated transport markets, a firm's ownership status and management system represent an important issue. Economic theory suggests that productivity and performance are higher in the private than in the public sector. In Switzerland, providers of bus transportation are traditionally corporations, though a large part of their equity shares are still held by the public sector (federal government, cantons, municipalities). In this paper we examine the potential impact of ownership on the cost of bus service provision for a sample of private, public and mixed bus companies in Switzerland. We have considered the estimation of a translog cost model for 34 bus transit companies observed over 5 years (1991-1995). The results only partially confirm that if the private sector holds shares in the company's capital, efficiency is enhanced. In addition, measures of economies of scale and density are derived and discussed within the actual public transport policy.

Contents:

1 English Summary

2 Project Description

3 Results

4 Publications

5 Presentations

1 English Summary

In deregulated transport markets, a firm's ownership status and management system represent an important issue. Economic theory suggests that productivity and performance are higher in the private than in the public sector. In Switzerland, providers of bus transportation are traditionally corporations, though a large part of their equity shares are still held by the public sector (federal government, cantons, municipalities). In this paper we examine the potential impact of ownership on the cost of bus service provision for a sample of private, public and mixed bus companies in Switzerland. We have considered the estimation of a translog cost model for 34 bus transit companies observed over 5 years (1991-1995). The results only partially confirm that if the private sector holds shares in the company's capital, efficiency is enhanced. In addition, measures of economies of scale and density are derived and discussed within the actual public transport policy.

2 Project Description

In recent decades the public transport policy of most industrialized countries has been characterized by deregulation and/or privatization policies.

Following the changes in the transport policy of the EC and the increasing subsidies for operations and infrastructures, the Swiss public transport policy has experienced several unavoidable regulatory reforms. These reforms were also induced by the findings of studies by Filippini et al. (1992) and Filippini, Prioni (1994), which empirically demonstrated the relation between the poor performance of Swiss bus operators in the pre-reform years to the subsidies, public obligations and the compensatory payments for the approximated tariff.

Since 1996 the Swiss government has been introducing important reforms in the regulation of the regional public transport system in order to encourage competition for the market. The new regional transport policy recognizes the earlier regulatory failures. With the implementation of a bidding system for regional transport services and the removal of the compensations for revenue reductions and approximated tariffs, the new act introduced greater market incentives for competitive behavior and efficient production.

Although the studies by Filippini et al. (1992) and Filippini, Prioni (1994) provided evidence on the economic consequences of regulation, due to lack of information no attention was given to the effect of ownership type on performance. In Switzerland, private, public and mixed firms characterize the regional public transit industry. The main function of these companies is to link mainly rural areas to an urban transport network or to the intercity railway line. The majority of these companies are stock companies created by private investors or by municipalities.

This mixed economy within the regional public transport market raises the interesting issue of the effects on costs of the different ownership structures and institutional organization form. Hence, the following question becomes central for policy makers: are private bus companies more efficient than public bus companies?

In a changing competitive environment such questions become increasingly relevant, first, for transport operators in terms of an improved knowledge about efficient organizational forms, and second, for transport regulators as input into establishing new competitive rules.

3 Results

The results only partially confirm the expectations that private firms should operate more efficiently than public ones. The significance of the ownership's parameter is slightly dependent on the specification of the output and network variables. Similar ambiguous results are common in the literature, suggesting that the ownership hypothesis needs to be tested and discussed within the particular regulatory setting and the market structure.

The explanatory power of the model gives us an insight into the nature of the production technology of the regional bus system in terms of economies of scale and density. The results show that bus operators fail to operate at an efficient density. However, service intensification seems an inadequate strategy under the actual demand conditions. Regarding the economies of scale, the results indicate that medium-sized bus companies manage to operate at constant returns to scale.

4 Publications

5 Presentations