On the efficiency of subsidized bus services in rural areas: A stochastic metafrontier approach

The operation of subsidized bus services in rural areas is subject to many factors beyond the bus firm's control. Without incorporating these factors, it is impossible to fairly evaluate the efficiency of the bus services. One of the factors that has been ignored is the different technology sets facing bus firms. To account for various technology sets, this study evaluates the technical efficiency of 20 bus firms and 890 route-year observations in Taiwan using stochastic metafrontier models. The evaluation results provide statistical evidence supporting the existence of different technology sets facing bus firms in four regions of Taiwan. Most bus routes were efficient in providing bus services but less so in attracting passengers, which indicates insufficient incentive designs in Taiwan's current subsidy scheme. Moreover, bus routes of the four regions had different production technologies. While drivers were critical to the service provision efficiency of bus routes of the northern and central regions where the wage level was relatively high, fuel was the primary factor determining the service efficiency of the southern and eastern regions where mountainous roads were relatively common. More frequent services or longer bus routes could attract more passengers in all the regions; however, it was not always efficient to do so in each region. Based on the analysis results, the managerial implications for bus firms in different regions and insights for government policies in revising regulatory constraints are provided.