An evaluation of optimal scale and jurisdiction size to improve efficiency in metropolitan bus systems

Abstract

Urban bus services operate under concession regime in many cities around the world. Their area boundaries are usually an institutional or administrative legacy, which do not necessarily meet the criteria of optimal jurisdictions. This means that some concessions suffer from a sub-optimal size, either because they are too small, and so fail to exploit economies of scale and/or density, or too big, and so operate in diseconomies of them. This study, by estimating the values of the economies of scale and density for the regulated concessions, identifies the dimensions for optimal exploitation in the Barcelona Metropolitan Area (AMB) for public and private bus providers. Our data cover the period 2012-2018 and we apply a stochastic frontier model for panel data to estimate both economies of scale and density. We found that the optimal size for a passenger bus service concession in terms of economies of scale in the AMB is between 0.5 and 1 million net km per annum. In the case of density economies, the size is considerably lower, at somewhere between 430,000 and 1,000,000 net km per year. We recommend ensuring that the size of the service provision area is optimal before the tendering process.