Bus Economies of Scale: Hiro Iseki on the Problems of Regional Agencies

Hiro Iseki, out of the University of New Orleans, is one of the best people out there working in transportation research. I remember having long discussions in our office at UCLA about this subject. The resulting manuscript from his dissertation is utterly brilliant:

Iseki, H. 2008. “Economies of Scale in Bus Transit Service in the USA: How Does Cost Efficiency Vary by Agency Size and Level of Contracting?” Transportation Research Part A (42): 1086-1097.

From the abstract:

Past studies of economies of scale in transit have tended to treat the transit industry as aset of similar agencies that have the same cost structure, and have conducted an analysis for the entire range of agency size using a single regression function. This may have caused problems in the interpretation of analysis results because agencies of different sizes that may have different cost structures are treated as a homogeneous data set. In this paper, I examine the issues of economies of scale in the provision of fixed-route bus transit service in the USA, using level of contracting as a variable to classify agencies into three different size groups.

In this analysis, using a significantly larger pooled data set (compared to previous studies) constructed from the National Transit Database of the US Federal Transit Administration from 1992 to 2000, I found that agencies with different levels of contracting exhibit very different relationships between cost per vehicle hour and agency size. Applying the observed range of agency size, I also found diseconomies of scale for all agency sizes with all levels of contracting, even when I utilized a quadratic function for the regression equation.

While the analysis is limited since the model did not control for many other explanatory variables, the findings suggest that the level of contracting is possibly an important variable, among many attributes of transit systems, with which to classify agencies into different size groups, each of which has a different transit cost structure.

This brings up a bunch of issues for institutions like the Los Angeles or New York MTA. These integrated regional agencies are rather infamous for favoring the rail side of their operations anyway, sometimes based on arguments related to costs or service quality and at other times related to arguments based on simple prestige/racism (“white people don’t ride the bus”–how many time have you heard it?). Iseki’s finding show that the institutions, integrated at a regional scale, are set up to face an increasing cost structure for the bus side of their enterprise. The rationale for doing so has been to better coordinate service: in places like LA, no matter how much rail the MTA builds any time soon, the buses are going to be an important part of the transit network. The theory is that you would get better coordination between services within one agency than across agencies.

However, it may be that we would be better off with the regional rail agency and small bus companies for distribution. The bus company could be expected to coordinate to the rail schedule by virtue of municipal contract.