Cost and Productivity in Regional Bus Transportation: The Belgian Case

ALTHOUGH productivity in large public transport firms is often a main issue in public policy discussions, little time and research effort has been devoted to develop reliable indices to measure this crucial concept. This apparent inconsistency is easily explained in terms of the difficulties involved in properly defining productivity. Unfortunately, many firms and economic studies in the past have used definitions of productivity growth that are unacceptable from an economic point of view. In this paper, we apply the methodology recently proposed by Caves, Christensen and Swanson [i98I] to study technological change in regional bus transportation in Belgium. The method correctly accounts for factor substitution over time and does not a priori restrict the nature of technological improvements. It is based upon a very general production structure and involves the estimation of a flexible cost function to describe the underlying technology. The resulting productivity indices give a much more reliable picture of productivity growth over time than other more naive methods that previously have been used. The paper is organized as follows: in a first section we briefly review some of the important approaches to productivity measurement that have appeared in the literature, with special emphasis on the transportation industries. In the next section we present the methodology used to calculate productivity indices for regional bus transportation on the basis of a flexible variable cost function. We discuss the properties of the translog variable cost function in Section III. The estimation results and a detailed explanation of their implications are presented in Section IV. Calculated productivity indices for regional bus transportation are derived and carefully interpreted in Section V. A comparison is also made between our proposed indices and the index used by the firm responsible for regional bus transportation. A final section contains a summary of the main conclusions.