Examining the cost structure of urban bus transit industry: does urban geography help?

The purpose of this paper is to expand empirical research on bus transit operation costs and test the hypothesis that physical and geographical characteristics are plausible explanatory cost factors. A translog cost function has been estimated, using a panel dataset of 1053 observations over 1996–2002 for a cross-section of 264 transit bus agencies in the US, combined with geographical and physical data processed with GIS technology. The results confirm the importance of geographical factors as determinants of bus transit costs. The trade-offs between geographical factors in shaping the frontier between economies and diseconomies of density are assessed. The implications of the results for public policy regarding competition are discussed.