Regulations and factor adjustment in transit systems

Abstract

Dynamic factor adjustment models are applied to analyse input inflexibilities in public transit systems. Based on a panel data of 44 U.S. single mode bus transit systems, labour input is found to be the most flexible with an adjustment speed of 17.8% annually while non-labour and capital inputs do not adjust. However, it is found that transit systems tend to increase non-labour and capital inputs when labour inputs are less than the optimal quantity, indicating short-run substitution of inputs. Furthermore, it examines internal and external factors affecting the adjustment process and finds that transit systems that operate most of their fleet at the peak and others providing their services without contacting-out adjust labour inputs faster. Among current regulations, it finds evidence that the bus useful life regulation decreases the adjustment speed of non-labour inputs in the short run.