Ten years after bus deregulation in Japan: An analysis of institutional changes and cost efficiency

The local bus market in Japan was deregulated in 2002. This study examines the impact of this deregulation on the market structure and the operators' cost efficiency over the last ten years. First, we perform a qualitative before-and-after-deregulation analysis of Japan's bus market, finding that there has been little change in the structure of the Japanese bus market so far. Second, we investigate the effectiveness of the deregulation and internal organisational factors by using a dataset of publicly owned (municipal) bus companies. We estimate the total cost frontier functions in order to examine their effects, showing that it is the internal organisational factors (i.e. governance structure) that affect the operator's efficiency, not deregulation. In fact, the coefficient of subsidies to companies is positive, with statistical significance, thereby suggesting that cost efficiency decreases as the subsidy ratio increases. The coefficient of the contracting-out (MCGL) dummy also obtains statistically significant results; thus, we provide an account of how contracting out clearly improves operators' cost efficiency. The deregulation variable did not show significant results.