Efficiency evaluation of bus transit firms with and without consideration of environmental air-pollution emissions

•We measure technical efficiency of bus transits systems.•We investigate the environmental efficiency with consideration of environmental air-pollution emissions.•We measure technical efficiency of bus transits with and without undesirable outputs.•We use the SBM and non-separable SBM approaches to measure the efficiency of bus transits.

This study examines the technical efficiency and environmental efficiency of bus transit firms using the slack-based measures (SBM) and non-separable slack-based measures (NSSBM) models with and without considerations of desirable and undesirable outputs. A case study based on data from 12 bus transit firms for the years 2007 to 2011 was conducted. Empirical results show that technical efficiency was affected by environmental pollution constraints from 2007 to 2011. The study has more general theoretical implications for the externalities literature as well.