2002. 25
A Private-Public Comaprison of Bus Service Operators
Fumitoshi Mizutani
Takuya Urakami

A Private-Public Comparison of Bus Service Operators*
byFumitoshi MIZUTANI
Graduate School of Business Administration
Kobe University

andTakuya URAKAMI
School of Business and Economics
Kinki University

Correspondence:
Fumitoshi Mizutani
Graduate School of Business Administration
Kobe University
2-1 Rokkodai, Nada-ku,
Kobe 657-8501 JAPAN(TEL/FAX) +81-78-803-6905(E-mail) toshi@rokkodai.kobe-u.ac.jp

September 18, 2002*

The previous version of this paper was presented at the 42nd European Congress of Regional Science Associationin Dortmund, Germany, August 27-31, 2002. We would like to thank the participants at the congress for thevaluable comments.

1

A Private-Public Comparison of Bus Service Operators[Abstract]
Because bus ridership has been steadily declining, bus companies, especially those
operating in the public sector, find themselves in the difficult situation of being unable to provide bus
service without government assistance. The main purpose of this study is to determine the key factors
causing differences in efficiency between private and public bus operators, especially with regard to thefollowing areas: efficiency in service production, wage, and cost. In our analysis, we use theeconometric methods to estimate the cost function of bus services and the wage function. Our analyticalresults suggest that the total operating cost of public bus operators is 20.2% higher than that of private bus
operators, and that the wages of public bus operator employees are 14.5% higher than those of private bus
operator employees.
[JEL Classification][Key Words]

H32, L51, L92, R40

private–public comparison, efficiency, operating costs, wage, bus industry

1 Introduction
Due to the steady increase in the use of private autos in Japan, the bus business is facing hardtimes.

In particular, bus services owned by public organizations have been struggling with increases inoperating deficits and subsidies, so that recently in many cities there has been a call for restructuring.
Publicly and privately owned bus operators co-exist in the Japanese market.

Although the financial

situation of privately owned bus operators is not completely healthy, they have performed better than their
publicly owned counterparts.

Moreover, a new transportation policy allowing easier entry into themarket will be introduced in February, 2002, presumably increasing competition and further highlighting
the difficulties faced by the publicly operated bus companies, with the result that there might be calls fortheir privatization, in a scenario similar to what happened with the former Japan National Railways.
The main purpose of this study is to find the key factors causing differences in efficiency
between private and public bus operators, especially in these areas: efficiency in service production, wage,
and costs.

In this study, we will make an analysis using observations of both private and public bus

2operators in the Kansai region in Japan for the five years from FY1997 to 2000.

After we explain thecurrent situation of the bus industry in Japan, we examine the performance differences between the two
sectors.

For our analysis, we use econometric methods to estimate the cost function of bus services andthe wage function.

Based on these functions, we will evaluate the differences in efficiency between

private and public bus operators.

2 An Overview of the Bus Service Industry
Although buses provide an important service in public transportation in Japan, the bus industry
is in trouble.

There are several problems:

1) a continuous decline in ridership; 2) operating deficits; 3)

decreasing financial support from the government to operators; 4) large cost differences between public
and private operators; and 5) a difficulty in maintaining bus service in small communities.

An overview

of Japan’s route bus transportation can be seen in Table 1.
The number of passengers transported by route bus declined steadily after 1970, when route bus
transported about 10 billion passengers up to 2000, when the number had shrunk to 4.8 billion, 47% of the1970 figure.

More surprisingly, the numbers transported by route bus decreased by about 1 billion

passengers, a 17% decrease, over a period of only 5 years, from 1995 to 2000.

Average usage of bus

transportation was about 96 times per person annually in 1970 but had decreased to only 38 times, adramatic change compared to the less drastic loss of business of other public transportation modes such as
railways.
There were 444 route bus operators in 2000, of which 399 operators, or 85%, were privately
owned.

Even in 1970, 84.4% of all route bus operators were private, showing that private operators havelong played an important role in the bus industry.

Despite the decrease3

inthe number of passengers,

the number of bus companies has increased since 1985, with most companies entering the market being
privately owned.

Table 1 Overview of Route Bus Transport in Japan
Year
1965
1970
1975
1980
1985
1990
1995
2000
Number of passengers
9,862
10,074
9,119
8,097
6,998
6,500
5,756
4,753
(millions)(0.98)(1.00)(0.91)(0.80)(0.69)(0.65)(0.57)(0.47)
Number of users of bus
98.1
96.4
81.3
69.2
58.0
52.8
46.1
38.0
to total population(1.02)(1.00)(0.84)(0.72)(0.60)(0.55)(0.48)(0.39)
Vehicle kilometer
2,636
2,935
2,878
2,910
2,880
3,038
2,956
2,897
(millions)(0.90)(1.00)(0.98)(0.99)(0.98)(1.04)(1.01)(0.99)
Average number of
67
72
72
74
74
70
69
67
passengers per vehicle(0.93)(1.00)(1.00)(1.03)(1.03)(0.97)(0.96)(0.93)
Average trip length per
5.4
5.2
5.2
5.1
4.8
5.1
5.3
5.6
person (km)(1.04)(1.00)(1.00)(0.98)(0.92)(0.98)(1.02)(1.08)
Number of operators:
362
359
364
355
350
377
404
444
Total
(1.01)(1.00)(1.01)(0.99)(0.97)(1.05)(1.13)(1.24)
Number of operators:
54
56
59
58
55
50
48
45
Public operators(0.86)(1.00)(1.05)(1.04)(0.98)(0.89)(0.86)(0.80)
Number of operators:
308
303
305
297
295
327
356
399
Private operators(0.86)(1.00)(1.01)(0.98)(0.97)(1.08)(1.17)(1.32)
Labor productivity
11.0
14.1
16.3
18.8
21.5
24.7
26.4
29.9
(thousands)(0.78)(1.00)(1.16)(1.33)(1.52)(1.75)(1.87)(2.12)(Note):(1) This table was derived by the authors using statistics from the Ministry of Land, Infrastructure and Transport(2002), pp.25-32.
(2) The number in parentheses is the ratio to the number in 1970.

Although the demand for route bus transportation has sharply decreased, the output of route bus
transportation changed less drastically.

While the number of passengers transported by route bus

decreased by the year 2000 to 47% of the 1970 figure, vehicle kilometer remained at 93% of the 1970
level, a fact indicating that the load factor per bus vehicle has sharply declined over the past two decades.
One important characteristic of the bus industry in Japan is that bus operators are generally
small.

Table 2 shows the size distribution of bus operators from various points of view.

measure, bus operators are small.

By anyIf there exist scale economies in the bus industry, these small

operators certainly face cost disadvantages.

4

Table 2 Size Distribution of Bus Operators in Japan in FY2000
By Vehicle
By Employees
Number ofvehiclesNumber ofoperators (%)

Number of
employees

Number ofoperators (%)

By Capital

Capital(million yen)

Number ofoperators (%)

By Revenues
Operatingrevenues(million yen)

Number ofoperators (%)- 10
97 (21.8)- 10
66 (14.9)- 10*
38 (8.6)- 50
56 (12.6)
11 - 30
91 (20.5)
11 - 3075 (16.9)
11 - 30
82 (18.5)
51 – 10050 (11.3)
31 - 5051 (11.5)
31 - 5052 (11.7)
31 - 5068 (15.3)
101 – 500
103 (23.2)
51 - 100
63 (14.2)
51 - 10064 (14.4)
51 - 10065 (14.6)
501 – 1000
46 (10.4)
101 - 200
64 (14.4)
101 - 300
106 (23.8)
101 - 200
37 (8.3)
1001 – 5000 103 (23.2)
5001 - 10000
201 - 300
29 (6.5)
301 - 500
35 (7.9)
201 - 500
54 (12.2)
21 (4.7)
301 - 500
18 (4.1)
501 - 1000
26 (5.9)
501 55 (12.4)
10001 20 (4.5)
501 31 (7.0)
1000 20 (4.5)
Public45 (10.1)
Public45 (10.1)
Total
444 (100.0)
Total
444 (100)Total
444 (100.0)
Total
444(100.0)(Source): Ministry of Land, Infrastructure and Transport (2002), p.26
(Note):(1) The item “less than 10 million in capital (*)” includes individual ownership companies (2 companies).
(2) Numbers in parentheses are percentages (%).

Both public and private operators have been suffering from financial deficits, as shown in Table
3.

A surprising 78.5% of private bus operators have been producing deficits, while almost 100% of

public bus operators show deficits.

Private bus companies, despite their deficits, are able to survive

because of government subsidies from the national government, although these have declined in recent
years.

For example, subsidies in FY1995 were 8,924 million yen for 161 operators but have decreased

to only 7,090 million yen for 164 operators.
continuously decreased.

Due to government budget problems, subsidies have

The main reason why public operators are more deficit-prone is that public

operators have higher costs per unit. As Table 4 shows, on average, the costs of public operators aretwice as high as those of private operators.

Although other factors besides ownership are important,public companies’ costs are certainly higher, especially labor costs.

5

Table 3 Financial Situation of Route Bus Operators in FY2000
Making profit
Making deficit
Private operator
40 (21.5%)
146 (78.5%)
Public operator
1 (3.1%)31 (96.9%)
Total
41 (18.8%)
177 (81.2%)(Source): Ministry of Land, Infrastructure and Transport (2002), p.32
(Note):(1) These numbers are for operators owning more than 30 vehicles.

Total
186 (100.0%)32 (100.0%)
218 (100.0%)

Table 4 Average Cost Comparison Between Private and Public Operators in FY2000
Private operators
Public operators
Total
Operating costs
NonTotal
Operating costs
costs
Sub total
Labor
Other
operatingcosts
Sub total
Labor
Others
costs
costs
costs
costs
costs
359.6
353.1
244.1
109.0
6.5
753.6
731.3
566.3
165.0
(100.0)(98.2)(67.9)(30.3)(1.8)(100.0)(97.0)(75.1)(21.9)
1.00
1.00
1.00
1.00
1.00
2.10
2.07
2.32
1.51
(Source): Ministry of Land, Infrastructure and Transport (2002), p.34
(Note):(1) Numbers in the first row are average costs in yen per vehicle kilometer.
(2) Numbers in parentheses are percentages (%).
(3) Numbers in the second row are relative indices when numbers of private operators are one.

Nonoperating
costs
22.3
(3.0)
3.43

3 Previous Studies
Many studies have been done comparing the private and public sectors in the bus industry interms of efficiency (costs and/or productivity differences).

For example, Anderson (1983) investigates

the effect of government ownership and subsidies on performance in the U.S. bus transit industry from1960 to 1975.

Her methodology is to construct regression models while controlling for several factors

which affect performance.

Although she admits that bureaucratic growth, inefficiency andvote-maximization theories are supportable, she ultimately concludes that inefficiency and bureaucratic
growth are associated with passive sponsorship and the large size of a firm, rather than with public
ownership.

Perry, Babitsky and Gregersen (1988) review 20 studies from three countries (mostly theU.S.) on the relationship between performance of the fixed-route bus and organizational form.

They

conclude that previous research has not made a persuasive case for the whole-scale privatization of either

6ownership or management of urban mass transit organizations.

As for operating efficiency, they

conclude that neither ownership nor management variations appear to have predictable associations with
operating efficiency.

However, they find that labor costs appear to be positively associated with public

ownership.
However, studies showing that private operators are more efficient than public operators are notuncommon (see Table 5).
efficient.

For example, Tittenbrun’s summary (1996) suggests that private is more

Hensher (1988) compares private and public urban bus operators’ costs by comparing unit

costs for those operators in his sample located in Sydney.

He finds that both driver costs and total

operating costs for the public operators are higher than those for private operators.

The major reasons

why the private sector’s costs are so much lower are the lack of demarcation between jobs, the use ofpart-time employees, much better driver utilization, the lower number of maintenance staff per bus, andthe smaller number of days lost through sickness.
between private and public transit firms.

Morlok and Viton (1985) compare the cost differences

They show that private firms do produce transit service at lesscost than public firms and posit the circumstances in which private sector operations would be expected tobe less costly.
Although many studies have investigated efficiency differences between private and public bus
operators, there have been three main problems with these studies.
performance measures in selected cases.

Many are simply comparisons of

For example, a wage level comparison between private andpublic operators is common to several studies but most do not control for factors besides the ownershipeffect.

Age distribution and working conditions could be important factors causing differences in wage

levels.

Studies controlling other factors, such as one by Anderson using the regression technique, areunusual.

7However, even if certain studies use regression to control factors, these are not based on
economic theory.

For example, Anderson (1983) and Perry and Babitsky (1986) use regression

techniques to explain factors which affect performance but their studies lack a firm basis in economic
theory.

Table 5 A summary of previous private–public comparisons of efficiency
Study

More efficient sector
privateNo
publicdifference
X
X
X
X
X
X
X
X
X
X
X
X
X
X

Country

SourceNelson (1972)
U.S.
(a)
Foster (1973)
U.S.
(a)OECD (1975)
U. S. (New York City )(b)Oelert (1976)
West Germany(b)King and Erlbaum (1977)
U.S.
(a)Holthoff and Knighton (1977) U.S.
(a)
Pozdena (1977)
U.S.
(a)Wallis (1979)
Australia(b)
Wallis (1980)
Australia(c)Tunbridge and Jackson (1980) U.K.
(c)
Feibel and Walters (1980)
Developing countries(b)
Barbour and Zerillo (1982)
U.S. (New York)(a)
Pucher (1982)
U.S.
(a)So. California Association of U.S. (Los Angels)(c)
Governments (1982)
Cox (1983)
U.S. (Cleveland)X(c)Anderson (1983)
U.S.
X
(d)
Pucher and Markstedt (1983)
U.S.
X
(e)
Morlok and Viton (1985)
U.S. (New York City Suburbs)
X(c)Perry and Babitsky (1986)
U.S.
X
(f)
Thriez (1986)
Turky (Istanbul) and India (Calcutta)X(b)Hensher (1988)
Australia (Sydney)X(g)
De Rus and Nombela (1997)
Spain
X
(h)
(Note):(a) Perry, J. L., T. Babitsky, H. Gregersen (1988), (b) Tittenbrun (1996), (c) Morlok and Viton (1985), (d) Anderson(1983), (e) Pucher and Markstedt (1983), (f) Perry and Babitsky (1986), (g) Hensher (1988), (h) De Rus and Nombela(1997)

Third, although some studies are based on economic theory, their results are not reliable.

For

example, Hensher (1988) and de Rus and Nombela (1997) analyze cost structure by using econometricmethods, but portions of their results do not satisfy sufficient conditions.

8

For example, the first-orderterm of input factor price in Hensher’s study shows a negative sign and de Rus and Nombela’s study does
not satisfy the homogeneity condition in input factor prices.
the ownership effect is relevant to efficiency.

It is important to investigate whether or not

We have to control especially such factors as output size,

service quality as related to load factor and peak ratio, network conditions such as bus stop spacing,network size, and demand conditions.

4 Model
4.1 Cost Model
Since Viton (1981), who was most likely the first to do so, estimated the translog function for
the urban bus system in the early 80’s, many cost studies have been undertaken for a wide variety ofreasons.

For instance, studies have evaluated scale economies, deregulation effects, and the effects ofsubsidies on cost structure.

But the most common model of cost function is the translog function, forexample, Williams and Hall (1981), Tauchen, Fravel and Gilbert (1983), Obeng (1984, 1985), Berechman
and Gilliano (1984), Andrikopoulos, Loizidis and Prodromidis (1992) and Fazioli, Fillippini and Prioni(1993).

Although more recently other methods have appeared in the literature--for example, thestochastic cost frontier model (Jorgensen, Pedersen and Volden, 1997) and the Data Envelopment
Analysis (Cowie and Asenova, 1999) have been applied to bus industry—the translog model is still wellused, as in de Rus and Nombela (1997) and Matas and Raymond (1998).
In this study, we followed the general structure of the cost model for bus firms, a model which
has already been developed in previous studies.

That is, we assumed the cost function as a function of

output (Q), input factor prices (w) and output conditions (H).
measure as a single output.

In this study, we specify the output

But there might be a possibility of aggregation bias on output because output

9

conditions such as service characteristics and network conditions could be different among bus operators.
Therefore, we include in the cost function output conditions (H), which represents output characteristics
and network characteristics.
kilometers.

In this study, the quantity of output is measured in annual vehicle

Variables of output conditions are bus stop spacing, peak ratio, and the average load of bus

service. Furthermore, we include the ownership dummy variable (D) as a fixed effect in the cost function,
because our main purpose is to evaluate how the ownership difference affects the cost structure of theroute bus operation.

The cost function is generally expressed as follows:

C = C (Q, H, w, D),
where

(1)

C: total cost
Q: quantity of output
H: output condition
w: input factor prices
D: ownership dummy variables.

Furthermore, in this study, we employ a translog cost function, as other cost studies have done.
Among previous studies, our cost model is very similar to Mizutani (1994) and de Rus and Nombela(1997).

The specific translog cost model used here is shown as follows:

lnC= α0 + αQ lnQ + Σiβilnwi + ΣmµmlnHm + (1/2) αQQ (lnQ)2 + (1/2) ΣjΣiβij (lnwi) (lnwj) ++ (1/2) ΣnΣmµmn (lnHm) (lnHn) + ΣiγQi (lnQ)(lnwi) + ΣmγQm (lnQ)(lnHm) +ΣmΣi γim( lnwi) (lnHm) + δ D,

where

(2)

C: total operating cost
Q: output measure
wi: input factor price (i (or j) = L1 (driver), L2 (non-driver), E (energy),
K (material and capital), S (other service))
Hm: operating condition (m (or n) = BS (bus stop spacing), PK (peak ratio),10LD (average load))
D: ownership dummy (public =1, private = 0).

In this model, we impose the restriction on input factor prices such that Σiβi = 1, ΣiγQi =0, Σmγimi=0.

Other restrictions are as follows:βij = βji , µmn = µnm.

the total cost function.

Furthermore, we apply Shephard’s Lemma on

Then we can obtain the input share equations as follows:

si = βi + Σjβij (lnwj) + γQi (lnQ) + Σmγim (lnHm),(3)

where si : input i’s share of total operating cost.

As for the estimation technique, we apply the SUR (Seemingly Unrelated Regression) by
Zellner (1962) for the total cost function and the input share equations.

Furthermore, it is worth notingthat we normalize the observation on each variable by dividing by its sample mean, before making thenatural logarithmic transformation.

In the actual estimation, we drop the price of other factor price (wS)from equations (2) and (3) by using the condition, βS = 1 - βL1 - βL2 - βE - βK .

4.2 Wage Function
In this section, we employ the wage function to evaluate the wage difference between private
and public bus operators.

As for the attributes of wage of bus operators, we chose four variables:

average employed years (T), working conditions (R), job type dummy (X) and ownership dummy (D).

In

the literature of labor economics, other factors such as education and training history are also used to
explain the wage, but we could not include these variables because of the unavailability of data.
Furthermore, the average age of each organization could also be important but we excluded it because thisvariable seems to be correlated to the average employed years in our data set.

11

As for the functional form,

we employed the simple log-linear function.

W = W (T, R , X , D ),
Where

(4)

W: average monthly salary per employee
T: average employed year
R: working condition
X: job type dummy (driver =1, non-driver = 0)
D: ownership dummy (public = 1, private =0).

lnW = α0 + αT lnT + βR lnR + θ X + δ D,
Where

(5)

W: average monthly salary per employee
T: average employed year
R: working condition
X: job type dummy (driver =1, non-driver = 0)
D: ownership dummy (public = 1, private = 0).

5 Empirical Analysis
5.1 Sample Selection
In this section, we will analyze Japanese bus operators by using econometric methods.
on previous studies, we carefully selected our observations.

Based

Table 6 shows a list of the bus companies

taken as examples for this analysis.
First, in order to create relatively similar demand and competition (i.e. with private auto)
conditions, we selected observations from the same region.

The selected observations are seventeenorganizations, both publicly and privately owned companies, from the Kansai Region.

Publicly owned

bus operators are all municipal (city) governments’ operators while private bus operators are joint stockcompanies.

We gathered data for these organizations from the fiscal years 1997 through 2000, giving us

12

a total of 68 observations.

Our data was derived from several sources but the cost data in particular wereobtained from Kobe city, and are statistics originally collected by the Japan Bus Association.

Table 6 List of bus operators used for this study
No
Name of company
Type1Hankyu Bus
Private2
Keihan Bus
Private3
Nankai Bus
Private4
Kintetsu Bus
Private5
Hanshin Bus
Private6
Sanyo Bus
Private7
Kyoto Bus
Private8
Keihan Uji Kotsu
Private9
Kongo Jidosya
Private

No
10
11
12
13
14
15
16
17

Name of company
Shinki Bus
Osaka City
Kyoto City
Kobe City
Takatsuki City
Amagasaki City
Itami City
Akashi CityType
PrivatePublicPublicPublicPublicPublicPublicPublic

5.2 A Performance Comparison Between Private and Public Operators
Before we apply econometric methods, we will compare the performance difference of theseorganizations.

A comparison of major performance measures of the selected organizations issummarized in Table 7.

This table shows that the operating revenue cost ratios of private and public bus

operators are similar, with both creating operating deficits.

The fact that both the average operating

revenues and the average operating costs of public operators are larger than those of private operators
might imply that the size and fare of public operators are larger than those of private operators, in addition
to the ownership being different.
Wage level also differs greatly between the two sectors, with that of public operators about 61%
higher than that of private operators.

However, this wage differential between these sectors might be theresult of carrier differences in addition to difference in ownership.
different between the two sectors.

Furthermore, operating conditions are

Public operators have more passengers per operator, shorter averageroute length, and shorter bus stop spacing.

These results show that we must control operating conditions.

13

Table 7 A private-public comparison of performance in selected organization
MeasureDefinition
Unit
Operating revenue cost
Operating revenues /
ratio
operating costs
Average operating
Operating revenues /Yen / vehicle-km
revenuevehicle kilometer
Average operating cost
Operating costs / vehicle
Yen / vehicle-km
kilometer
Labor productivity
Vehicle kilometer / employees
Vehicle-km /personAverage monthly wage
Total salary expenditure per
Yen / person
month / number of persons paid
Passenger density
Number of passengers / number
Person / routeof routes
Number of passengers
Number of passengers
1000 Person
per operator
Bus density
Vehicle kilometer / routekilometer
Average route length
Route kilometer / routekm
Daily bus operation
Average bus stop
spacing

Number of bus operations perday
Route kilometer / number of bus
stops

Number ofoperation / daykm

Public0.811

Private
0.882

760

458

882

438

17,701

22,111

981,133

601,865

39,30033,34360,45629,44721,021

6,751

6.5

11.2

3,496

2,298

1.000

2.698

5.3 Definition of Variables for Econometric Analysis
The variables used for the estimation of total operating cost function are defined as follows andshown in Table 8.

First, total operating costs (C) are the sum of labor, energy, material and capital costs

for the operating division.

The costs of the non-operating division, which are the general administrative

costs of the administrative division of the headquarters, are not included because these are not reported
publicly.
As for output measures, we use annual vehicle kilometer (Q). In this study, the cost model is asingle-output model with a variable of output characteristic.

14

However, the costs of bus operation areaffected by operating conditions.

Certainly, previous studies on cost estimation in the bus industry

include many kinds of variables related to operating conditions. Therefore, in order to avoid estimation
bias based on different kinds of operating conditions, we also include three kinds of variables describing
operating conditions: bus stop spacing (HBS), peak ratio (HPK), and average load (HLD).
is defined as the average length between bus stops.

Bus stop spacing

The peak ratio is defined as the ratio of the total

number of pass users to the total number of passengers, because most pass users are commuters.

Finally,

average load is defined as the number of passengers per vehicle per kilometer.
We define five kinds of input factor prices.

First, as for labor price, we choose two kinds ofprice: the labor price of the bus operator (wL1) and the labor price of other workers (wL2).

These prices

both are defined as the average monthly salary per employee. Therefore, we obtained these by dividing
monthly labor costs in each category by the total number of employees. Energy price (wE) is obtained by
dividing energy expenditures by diesel consumption.

Capital and material price (wK) is obtained here bydividing depreciation expenditures by the total number of vehicles held by the organization.

Finally, theprice of other service costs (wS), such as highway charges, insurance, and tax payments is the consumer
price index.
As for the ownership dummy variable (D), this variable is defined as the difference in ownership,
in which public ownership is equal to one and private ownership is equal to zero.

All public bus

operators used here are those of municipal governments.
As for variables for wage function, the wage per employee (w) is defined as average monthly
salary per employee.

The average employed year (T) of the firm is used here.

as how many years an employee has worked for the firm on average.

Finally, vehicle-km per employee(R) is obtained by dividing vehicle kilometer by the total number of employees.

15This measure is definedTable 8 Definition and statistics on variables used for the estimation of total cost function
Standard
Variable
Definition
Unit
Mean
Minimum
DeviationC
Sum of labor, energy, material,
million
8,695
8,601
517
(Total operating
depreciation costs and other
yen
cost)
service costs
thousandQ
12,736
10,683
1,310
Annual vehicle kilometervehicle-km(Output)
wL1
Average monthly salary per
yen /(Wage of driver)driver
785,708
146,759
573,035
driverwL2(Wage ofnon-driver)wE(Energy price)

Average monthly salary per
non-driveryen /non-driver

Maximum
28,52532,674
1,092,380

816,609

196,152

297,890

1,102,960

Energy expenditure per diesel
yen / litter
consumption

58.8

3.5

53.0

64.0

wK
(Capital price)

Depreciation costs per vehicle

thousandyen /vehicle

1,167

496

150

2,272

wS
(Service price)

Consumer price index

-

96.4

0.9

95.6

97.9

Kilometers between bus stops

km

2.1

1.7

0.2

6.0

Pass users per total passengers

-

0.338

0.132

0.113

0.629

5.4

3.9

0.6

15.8

yen /
employee

636,867

118,498

228,905

835,695

Average employed years

year

18

6

3

32

Vehicle-km per employee

vehiclekm /person20,185

5,363

12,306

39,628

HBS(Bus stop
spacing)
HPK(Peak ratio)

HLD
passenger/
Number of passenger per vehicle(Average load)
vehicle/km
per kmw(Wage perempoyee)T(average
employed years)
R(Vehicle-km per
employee)

Average monthly salary per
employee

5.4 Estimation Results
The estimation results of both cost and wage functions are shown in Table 9.

16

Estimation

methods are the SUR (Seemingly Unrelated Regressions) for the cost model with input share equations
and the OLS (Ordinary Least Squares) regression for the wage function.
regressions is acceptably high for these models.
required properties.

The goodness-of-fit in these

The estimated cost model meets almost all of theFirst, symmetry and homogeneity in input factor prices are satisfied because

restrictions in input factor prices are imposed.
model are satisfied at least locally.

The monotonicity and the concavity conditions in the cost

The first-order coefficients in the cost model show the correct sign.

As for the wage function, the coefficients show almost the correct sign.

Therefore, we decided toevaluate the ownership difference according to total operating cost and wage.

Furthermore, it is worth

noting that in this analysis, we use pooled data, which might lead to serial correlation andheteroskedasticity.

However, test results show there is neither serial correlation nor heteroskedasticity.

Table 9 Estimation Results of Total Operating Cost Function and Wage Function
Cost Function(First order term only)
α0(constant)αQ(output)
βL1(wage of driver)βL2(wage of non-driver)βE(energy price)
βK(capital price)µBS(bus stop spacing)µPK(peak ratio)µLD(average load)δ(ownership dummy)

Wage Function
α0(constant)

11.270(0.023)0. 959(0.017)
0. 617(0.005)
0. 114(0.006)
0. 045(0.001)
0. 056(0.002)-0.128(0.031)
0. 121(0.072)-0.168(0.025)
0. 184(0.031)αΤ(employed year)
βR(working condition)
θ(driver dummy)δ(ownership dummy)

17

5.938
(0.430)0. 405(0.026)0.079(0.044)
0. 140(0.018)
0. 139(0.024)

R-squared

R-squared

0.996

0.782

(Note): The full estimation result in the cost model is shown in Appendix-1.

First, as for the cost function, the coefficient of the ownership dummy shows 0.184 and is
statistically significant at 1%, indicating that public ownership pushes total operating costs upward.

Ifother conditions such as outputs, input factor prices, and operating conditions hold the same between
private and public bus operators, then total operating costs for the public bus operators is 20.2% higher
than that for the private bus operators.

In spite of the fact that we control several factors which affectcost difference, the ownership effect is still significant for total operating costs.

As for the wage function,

the coefficient of the ownership dummy is statistically significant at 0.139, which is slightly lower thanthe case for total operating cost.

This result means that the wage level of public bus operators is about

14.5% higher than that of private bus operators.

These results indicate that public ownership certainly

involves higher costs and a higher wage level than private bus operators.

6 Concluding Remarks
The bus industry has suffered a decline in bus ridership due to the increase in use of the private
auto and apparently can no longer continue to provide service without government assistance.
Furthermore, the deregulation of land transport introduced quite recently will create more competition,with privately owned bus operators becoming more free to enter a market where public bus companies
have dominated.

With this imminent change in mind, we have focused on performance differences

between private and public bus operators.

Our main question is whether or not public bus operators areless efficient than private operators, even if we control other factors.

18

Most previous studies reportingthat private bus operators are more efficient have failed to hold other factors constant.
In our analysis, we estimate the cost function of bus services and the wage function witheconometric methods.

Based on our analytical results, we conclude that private bus operators are more

efficient than their public counterparts, with the total operating cost of public bus operators being 20.2%
higher than that of private bus operators and the wage of public bus operators 14.5% higher than that ofprivate bus operators.

This result suggests that if factors besides ownership had been controlled for, theefficiency difference found by previous researchers might have been smaller.

In other words, comparedwith private bus operators, public bus operators seem still to have room to improve their performance.
One reason why private is still more productive is due to the pressure imposed by competition.

Becauseprivate operators do not receive many subsidies and are required to be self-sufficient through thecollection of fare revenues, they are careful to maintain good management to avoid bankruptcy.
However, public operators still qualify for government subsidies and their wages are higher in order to beconsistent with those of other divisions of city government, so that they are less likely to react vigorously
to stem decreases in their business.

Under these circumstances, public operators are less efficient thantheir private counterparts.

[2002.9.18 629]

References
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19

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20

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Appendix-1 Estimation Results of Translog Cost Function

Table A-1 Estimation Results of Total Operating Cost Function
Standard

α0
αQ
βL1
βL2
βE
βK
µBS
µPK
µLD
δ
αQQ
βL1L1
βL1L2
βL1E
βL1K
βL2L2

Estimate

Error

11.267

0.023

0.959

0.017

0.621

0.005

0.114

0.005

0.046

0.001

0.054

0.002

-0.122

0.031

0.121

0.073

-0.149

0.022

0.184

0.031

0.172

0.050

0.172

0.040

-0.0080.026-0.0170.006-0.036

0.008

0.045

0.027

Standard

βEE
βEK
βKK
γQL1
γQL2
γQE
γQK
γQBS
γQPK
γQLD
γL1BS
γL1PK
γL1LD
γL2BS
γL2PK
γL2LD

Estimate

Error

0.042

0.009

0.000

0.001

0.032

0.004

-0.0340.004-0.0020.005-0.001

0.001

0.000

0.002

-0.0930.022-0.0960.047-0.0800.028-0.001

0.005

0.014

0.011

0.003

0.007

-0.0090.006-0.0340.012-0.0070.009

22Standard

γELD
γKBS
γKPK
γKLD
µBSBS
µBSPK
µBSLD
µPKPK
µPKLD
µLDLD

Estimate

Error

0.001

0.001

0.004

0.002

0.001

0.004

0.004

0.003

-0.208

0.051

0.006

0.078

-0.190

0.046

0.335

0.136

-0.0900.075-0.3320.113

R-squared

0.996

βL2E
βL2K

-0.025-0.005

0.004
0.007

γEBS
γEPK

0.003
0.002

23

0.001

Log likelihood

967.822

0.002

Observations

68

Discussion Paper
No.
2001･1

AuthorTakashi Hatakeda
Nobuyuki Isagawa

2001･2Michiyasu Nakajima
Takeshi Mizuguchi
Katsuhiko Kokubu
Yasushi Onishi
Koji Okubayashi

2001･3
2001･4

2001･5
2001･6
2001･7

2001･8

2001･9Katsuhiko Kokubu
Akihiro Noda
Yasushi Onishi
Tomomi Shinabe
Kunio Miyashita
Akinobu Sakashita
KOKUBU,
Katsuhiko
NASHIOKA, ErikoDAIKUHARA, Rie
KOKUBU,
Katsuhiko
KURASAKA,
TomokoShuzo Murata

2001･11

Makoto Yano
Fumio Dei
Mahito Okura

2001･122001･13

Mahito Okura
Shuzo Murata

2001･14

Koji Okubayashi
Toshinori Takashina

2001･15
2001･16

Takuji Hara
Shuzo Murata

2001･17

Norio Kambayashi

2001･18
2001･19
2001･20

Yuichi Fukuta
Kazuhiro Tanaka
Kentaro Nobeoka
Kazuhiro Tanaka

2001･21

Mahito Okura

2001･22
2001･23

Kazuhiro Tanaka
Mahito Okura

2001･24

Katsuhiko Kokubu
Akihiro Noda
Yasushi Onishi
Tomomi Shinabe
Akira Higashida

2001･10

Title
Stock Price Behavior Surrounding Repurchase
Announcements:
Evidence from Japan
Material Flow Cost Accounting of IMU (October 2000)

Date
1／2001(in Japanese)

1／2001

Japanese Manufacturers Without Factories:
Cases of Sony, Matsushita, Misumi, People
Determinants of Environmental Report Publicationin Japanese Companies

1／2001

Logistics Strategy of Japanese Port Management
Issues and Method of Organizational Culture Studies:
Functionalism Approach
Environmental Accounting in Japanese Companies as ofNovember 2000

(in Japanese)

2／20013／2001(in Japanese)

3／20012／2001

Corporate Environmental Accounting: A Japanese
Perspective

The Comparative Study of Japanese & U.S. Companies(6) The Health & Long Term Care-The Management
Education
A Trade Model with Vertical Production Chain andCompetition Policy in the Downstream Sector
Risk Classification: A Study of the Tradeoff between
Quantity and Quality of Insured
Is the Separating Equilibrium Really Desirable?
The Comparative Study of Japanese & U.S. Companies(5) The Conflict Among Companies
Research Report on the relations between there-employment process and former job career at thecompulsory retirement of workers of a firm
The Social Shaping of Medicines
The Comparative Study of Japanese & U.S. Companies(7) Toward Restructuring Japanese Corporations
Cultural influences on IT usage among workers:a UK-Japanese comparison
A Test for Rational Bubbles in Stock Prices
Toward the Effective Reform of Japanese Corporate
Governance
Structural Changes in Top Management―The Effect ofCorporate Governance Reform in Japan
In the Separating Equilibrium Really Desirable ?
―revised version of No.2001･12―
Introduction to Corporate Governance
The Role of Some Insurance Contracts in a Subjective
Equilibrium Model with Observable Effort
Environmental Disclosure of Japanese companies

3／2001(in Japanese)

4／2001

12／2000(in Japanese)

5／2001(in Japanese)(in Japanese)

5／20016／2001(in Japanese)

7／2001(in Japanese)(in Japanese)

7／20017／20017／2001(in Japanese)

7／20017／2001(in Japanese)

7／2001(in Japanese)

8／2001(in Japanese)(in Japanese)

8／20018／2001(in Japanese)

8／2001

Discussion Paper
No.
2001･25

2001･26
2001･27

AuthorKatsuhiko Kokubu
Tomomi Shinabe
Akira Higashida
Yasushi Onishi
Akihiro Noda
Katsuhiko Kokubu
Eriko Nashioka
Masakazu Takagi

2001・28 Mahito Okura
2001・29 Atsushi Takao

2001・30 Mahito Okura
2001・31 Masakazu Takagi
2001・32 Norio Kambayashi
Harry Scarbrough2001・33 Fumitoshi Mizutani
Shuji Uranishi
2001・34 Mahito Okura

2001・35 Tsutomu Harada
2001・36 Nobuyuki Isagawa

2001・37 Nobuyuki Isagawa
2002・1

Nobuyuki Isagawa

2002・2

Nobuyuki Isagawa

2002・3Mahito Okura

2002・4

Elmer Sterken
Ichiro Tokutsu
Mahito Okura
Mahito Okura
Nobuyuki Isagawa
Koji Okubayashi
Toshinori Takashina

2002・5
2002・6
2002・7
2002・8

2002・9Hajime Shimizu

2002・10 Nobuyuki Isagawa
2002･11

Nobuyuki Isagawa

Title
Environmental Reporting of Japanese companies(in Japanese)

Date
8／2001

Environmental Accounting of Japanese companies(in Japanese)

8／2001Elementary Study of East Asian Corporate andManagement System
Vertical Differentiation in the Insurance Market
A Study on the Penetration Process of Modern Insurance
by Evolutionary Economics―Why do the Modern
Insurance and the Premodern Mutual Society coexist?―
An Essay in the Economics of Post-loss Minimisation:
An Analysis of the Effectiveness of the Insurance Law
and Clauses
Co-operation between Hanshin(Osaka-Kobe) Area andSouth-east Asia-Finding business opportunities of mutual
benefits
Cultural influences on IT use amongst factory managers：
A UK-Japanese comparison
The Post Office vs. Parcel Delivery Companies：
Competition Effects on Costs and Productivity
An Essay in the Economics of Post-loss Minimisation:
An Analysis of the Effectiveness of the Insurance Law
and Clauses―revised version of No.2001・30―
An Examination of IT Paradox in Japan
Open-Market Repurchase Announcements, Actual
Repurchases, and Stock Price Behavior in Inefficient
markets
Corporate Financial Strategy and Stock Price Behavior ina Noise Trader Model with Limited Arbitrage
Cross Holding of Shares, Unwinding Cross Holding of
Shares, and Managerial
Entrenchment
A Theory of Stock Price Behavior following Repurchase
Announcements
An Equilibrium Analysis of the Insurance Market
with Vertical Differentiation
What are the determinants of the number of bankrelations of Japanese firms?
Review Article：Adverse Selection in Insurance Market
Welfare Effect of Firm Size in Insurance Market
Does Investment Horison Affect Investment Strategy ?
Research Report of Careers and Employment Process ofWorkers over 60 years old :a Case of a Japnaese
Manufacturing Company
On the Existence of Tax Equilibrium : Incomplete Market
with Capital Income Tax
Cost of Financial Distress and Debt Restructuring :Debt Forgiveness and Equity-for-Debt Swap
Open-Market Repurchase Announcements, Actual
Repurchases, and Stock Price Behavior in Inefficient
Markets―revised version of No.2001･36―

9／2001(in Japanese)(in Japanese)

9／20019／20019／2001(in Japanese)

9／2001

10／2001
10／2001
11／2001(in Japanese)

11／2001
12／2001
12／2001(in Japanese)

1／ 2002(in Japanese)

1／ 20022／20023／2002(in Japanese)(in Japanese)(in Japnaese)

3／20023／20023／20024／2002(in Japnaese)

4／2002(in Japnaese)

4／20025／2002

Discussion Paper
No.
2002･12

AuthorKenji Kutsuna
Richard Smith

2002・13 Kunio Miyashita
2002・14 Hajime Shimizu
2002・15 Hajime Shimizu
2002・16 Koji Okubayashi
2002・17 Fumitoshi Mizutani
Shuji Uranishi
2002・18 Kazuhisa Otogawa
2002・19 Atsuo Takenaka
2002・20 Tsuneo Nakano

2002・21 Tsuneo Nakano
2002・22 Fumitoshi Mizutani
Shuji Uranishi
2002・23 Atsushi Takao
Mahito Okura
2002・24 Fumitoshi Mizutani
2002・25 Fumitoshi Mizutani
Takuya Urakami

Title
Why Does Book Building Drive Out Auction Methodsof IPO Issuance?
Evidence and Implications from Japan
International Logistics and Modal Choice
Incomplete markets with capital income tax and public
goods
On the possibility of Pareto improving of tax-equilibrium
China-Japan Comparison of Work Organization
The Post Office vs. Parcel Delivery Companies:
Competition Effects on Costs and Productivity―revised version of No.2001･33―
Earnings Forecast and Earnings Management of JapaneseInitial Public Offerings Firms
The Classification of Foreign R&D Units
The Dutch East India Company and its Corporate
Governance―revised version of No.2000･40―
The British East India Company and its Corporate
Governance
Privatization Effects on TFP Growth and Capital
Adjustments
Some Notes on the Privatization of Postal Life Insurancein JapanPrivately Owned Railways’ Cost Function, Organization
Size and Ownership
A Private-Public Comaprison of Bus Service Operators

Date
5／2002(in Japnaese)(in Japnaese)

6／20026／20026／20027／20027／20028／2002(in Japanese)(in Japanese)

8／20028／2002(in Japanese)

8／20028／2002(in Japanese)

9／20029／20029／2002