Working Paper: NBER ID: w22088
Authors: Rhiannon Jerch; Matthew E. Kahn; Shanjun Li
Abstract: Local governments spend roughly $1.6 trillion per year to provide a variety of public services ranging from police and fire protection to public schools and public transit. However, we know little about public sector’s productivity in delivering key services. To understand the productivity both over time and across space, we examine public bus service, which represents a standardized output for benchmarking the cost of local government service provision. There is significant dispersion across transit agencies in the operating cost per bus mile with the highest being more than three times as high as the lowest among top 20 largest cities by population. We estimate the cost savings from privatization and explore the political economy of why privatization rates are lower in high cost unionized areas. Our analysis finds that the full privatizaton could result in cost savings of $5.7 billion in 2011 and that the gain in economic efficiency from more closely aligning bus fares with production costs would be worth at least half a billion dollars.
Keywords: Privatization; Public Sector Unions; Transit Costs; Local Government Efficiency
JEL Codes: J3; J45; R4; R5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Public Sector Unions (J45) | Higher Transit Operating Costs (L91) |
| Size of Transit Agencies (L91) | Cost Differentials (L11) |
| Privatization (L33) | Cost Savings for U.S. Bus Transit System (L91) |
| Privatization (L33) | Service Quality (L15) |
| Privatization (L33) | Lower Transit Operating Costs (L91) |
| Political Affiliation of Mayors (D71) | Likelihood of Privatization (L33) |