Ownership and competition in European transit: assessing efficiency

Abstract

Ownership and competition and their effect on public transit system efficiency is a topic of considerable interest. In this article, we use a stochastic frontier error component model specification that incorporates a dynamic ARCH error structure to assess the effects of ownership and competition on European public transport systems using data from 15 European systems for a 10-year time period (1990–2000). Results indicate: (i) a clear rejection of the standard frontier model and existence of ARCH-related heteroskedastic technical inefficiency; (ii) transport operators in cities where competition has been introduced to demonstrate increased efficiency and (iii) efficiency findings vary between different error formulations.