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The Deadweight Costs of Public Transit Subsidies

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  • Obeng, K.

Abstract

This paper determines the deadweight loss of operating and capital subsidies offered US public transit systems by extending previous research by Tullock (1997). It develops a method for calculating deadweight loss and using 2006 data for 227 single mode bus transit systems it estimates cost and share equations to obtain the coefficients needed to calculate this loss. It finds that deadweight loss from the subsidies is 6.83% of total cost or $0.861 million on the average and that operating subsidy accounts for $0.780 million of it while capital subsidy’s share is $0.0503 million. A further decomposition of the deadweight loss among its sources using regression shows that the incentive tier of the federal operating subsidy, federal labor protection (Section 13(c)), fleet size, and the number of maintenance facilities owned are positively associated with it while leasing instead of owning maintenance facilities and absence of dedicated funding sources are negatively associated with it.

Suggested Citation

  • Obeng, K., 2010. "The Deadweight Costs of Public Transit Subsidies," 51st Annual Transportation Research Forum, Arlington, Virginia, March 11-13, 2010 207240, Transportation Research Forum.
    • Handle: RePEc:ags:ndtr10:207240
    DOI: 10.22004/ag.econ.207240
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    References listed on IDEAS

    as
    1. Obeng, K. & Sakano, R., 2008. "Public transit subsidies, output effect and total factor productivity," Research in Transportation Economics, Elsevier, vol. 23(1), pages 85-98, January.
    2. K. Obeng & R. Sakano, 2000. "The Effects of Operating and Capital Subsidies on Total Factor Productivity: A Decomposition Approach," Southern Economic Journal, John Wiley & Sons, vol. 67(2), pages 381-397, July.
    3. Solís, Liliana & Maudos, Joaquín, 2008. "The social costs of bank market power: Evidence from Mexico," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 467-488, September.
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    5. van Dijks, Mathijs A. & van Bergeijk, Peter A. G., 1997. "Resource misallocation and mark-up ratios: an alternative estimation technique for Harberger triangles," Economics Letters, Elsevier, vol. 54(2), pages 165-167, February.
    6. Brian A. Cromwell, 1989. "Capital subsidies and the infrastructure crisis: evidence from the local mass-transit industry," Economic Review, Federal Reserve Bank of Cleveland, vol. 25(Q II), pages 11-21.
    7. Mehdi Farsi & Massimo Filippini & Michael Kuenzle, 2006. "Cost Efficiency in Regional Bus Companies: An Application of Alternative Stochastic Frontier Models," Journal of Transport Economics and Policy, University of Bath, vol. 40(1), pages 95-118, January.
    8. Massimiliano Piacenza, 2006. "Regulatory Contracts and Cost Efficiency: Stochastic Frontier Evidence from the Italian Local Public Transport," Journal of Productivity Analysis, Springer, vol. 25(3), pages 257-277, June.
    9. Ryoichi Sakano & Kofi Obeng & G. Azam, 1997. "Subsidies And Inefficiency: Stochastic Frontier Approach," Contemporary Economic Policy, Western Economic Association International, vol. 15(3), pages 113-127, July.
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