• Abstract and Figures
• Public Full-text

Ci;ostsand Scale of BusServices Public Disclosure Authorized World Bank Staff Working Paper No. 325 April 1979 Public Disclosure Authorized Public Disclosure Authorized The views and interpretationsin this document arethose of the authors and should not be attributed to the World Bank,to its affiliated organizations,or to any individual acting in their behalf. Preparedby: A.A. Walters Urban ProjectsDepartment Copyright © 1979 Public Disclosure Authorized The World Bank 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. WORLD BANK Staff Working Paper No. 325 April 1979 COSTS AND SCALE OF BUS SERVICES This paper challenges the conventional wisdom that large buses in large organizations with subsidies to produce optimum frequencies are the best arrangement for urban road passenger transport. It is shown that in theory small buses are often appropriate, giving the best frequencies and speeds and suitably low average passenger waiting times. Direct observations of minibus services in a number of cities tentatively demonstrate the veracity of the theory. Furthermore the best institutional organization is not the large firm or municipal authority, but the small firm, often the owner/driver. There is no case for any substantial subsidy for appropriately organized urban bus transport. Prepared by: A. A. Walters Urban Projects Department Copyright O 1979 The World Bank 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. ACKNOWLEDGEMENTS In writing this paper the author received valuable and constructive comments from H. Mohring, R. Kirby, A. Goldstein, J. Cracknell, G. Jacobs, H. Levinson, H. Dunkerley, A. Churchill, and G. Roth. Additional data were provided by C. Rees (on Kuala Lumpur) and R. Podolske (on Bangkok). Mrs. Betty Easter tirelessly prepared the manuscript and removed many inconsistencies and errors. - ii - INTRODUCTION Bus services are the most important mode of motorized transport in citi-s in developing countries. And, in contrast with the standard large buses of the municipalized or nationalized undertaking in the developed countr-ies9ci ties ir developing countries have evolved a wide variety of bus systems and institutional structures. The jitney, the shared taxi, the minibus i(12seats or so), the microbus (less than 12 seats) and the midibus (15-25 seats)--all exist, indeed flourish, sometimes alongside the standard bus which one sees in the cities of Europe and America. Similarly, while the standard large bus is often, though not always, operated by the nationalized concern, the small buses and taxis are normally owned and operated by their main driver. The natural policy questions that emerge are: What is the best institutional form for urban bus services? Should they be nationalized or at least stringently regulated as the only way to "integrate" or "coordinate" bus services---orcan these functions be performed better in another way? Should there be a bus subsidy and if so in what form? What size should the buses be? Should there be a mixture of sizes as well as institutional forms? For an informed discussion on such policy matters, one requires first an analysis of the principles involved. The concept of economies of scale in the bus business has been confused with the economics of the size of bus. Whether larger firms enjoy lower or higher costs is quite different from the issue of larger buses being more or less efficient than smaller buses. Also to be considered as part of the input of bus operation is the time spent waiting or traveling by passengers; therefore any optimization policy resulting from these variations in time inputs should be taken into account. It is clear that a free market system would take into account much of the time-of- passenger effects--and primarily by using a "small bus" that would give rise to profitable frequencies and trip times. The external economies of scale of increased frequency of bus services would be largely incorporated in private decisions, and thus there is no reason to suppose that, above some very small minimum size of firm, there are any substantial economies of scale either external or internal. On the contrary there are good reasons for supposing that unit costs will be higher for the large firm and that it will have less incentive to take into account the externality of passengers' time. If these theoretical conjectures have any substance one would expect to observe in cities where there is a wide degree of freedom to develop appropriate vehicle size and institutional forms: (a) markedly small buses on the average, (b) small firms, (c) lower fares and better service, that is to say better frequencies, than in cities which have the traditional large bus in a municipal organization. Similarly where there is competition between the small bus operator and the large municipal organization, one would expect the small man to be the winner. These predictions are borne out in a survey of a number of cities in developing countries (and in the odd case of Belfast) where there is some freedom for private operators to enter the industry. - iii - The main policy implication to be drawn from this discussion is that there is a prima facie case for giving private operators some substantial freedom to enter the urban bus business. The second part of this paper concen- trates on an evaluation of just such a policy change. In Kuala Lumpur the government allowed a substantial but limited number of minibuses to enter the industry during 1974-75. It is shown that very large benefits flowed from this policy change--amounting to nearly one percent of the incomes of residents of Kuala Lampur--and even larger benefits are achievable with a more liberal policy. Finally, it is worth emphasizing that throughout the cities surveyed here, the municipalized or nationalized bus companies always had higher costs, although they had significant advantages granted by their concession. This is partly because in bus transport there seem to be significant economies of being small. The implication which needs to be explored is that free entry into urban bus transport is the best policy option for cities in developing countries. This would provide a fertile ground for the deployment of indivi- dual incentives, the growth of entrepreneurship and savings and investment, and for greater use of labor-intensive "appropriate technology." - iv - CONTENTS INTRODUCTION ............................................... ii I. ECONOMIES AND SUBSIDIES IN BUS BUSINESS ................. 1 A. Economies and Externalities .......................... 1 B. Profitable Adjustments of Bus Frequencies.....*..... 3 C. Bus Size, Waiting and Traveling Time ................. 5 D. A Simple Model of Bus Size........................... 7 E. Regulation and the Consequences ..................... 15 F. Case Studies ............. *.... 18 G. A Summary of Empirical Evidence ..... .... 24 H. Conclusion on Policy ........ ................... 26 II. THE BENEFITS OF MINIBUSES: THE CASE OF KUALA LUMPUR ..... 28 A. The Minibus Policy... .... es ............ ...... .... 28 B. Alternative Regulatory Systems and Effects*.......a.... 30 C. Estimates of Benefits.. .............................. 33 D. Conclusions on Policy. ........... **................. 38 Tables 1.1 A Summary of Status of Minibus 25 Figures 1.1 Manning Scales 11 1.2 Comparison of Trips: Buses/Minibuses 16 2.1 Demand for Passenget Trips: Buses/Minibuses 30 2.2 Demand and Supply of Passenger Trips by Minibus under Different Regimes of Regulation 31 2.3 Demand for Minibus Trips 34 Annexes 1 Costs and Sizes of Buses 2 Costs of Bus and Minibus 3 Profits of Minibuses I. ECONOMIES AND SUBSIDIES IN BUS BUSINESS A. Economies and Externalities 1.01 It is sometimes taken as axiomatic that there are substantial economies of scale in the business of providing bus services. And such economies have been adduced as a rationalization for the argument that urban buses should be subsidized. The most sophisticated version of the argument has been advanced by Mohring (1972). He suggests that additional bus services--characterized by increasing the frequency of buses of a fixed size on a particular route--will inter alia reduce passenger waiting time. This reduction in average costs means that marginal costs (in the long run) are less than average costs, and consequently long-run marginal cost pricing would require a subsidy. 1/ The problem has been analyzed further by Nash (1978); he asks what would be the optimum mark up to cover costs. 1.02 One preliminary point is that economies of scale are usually relevant for the firm. Mohring's formal analysis, however, applies to the route and assumes implicitly that the firm or municipalized undertaking is an aggregate of such routes. The bus firm is then assumed to enjoy constant returns to scale with respect to the expenses that it incurs (excluding passenger time) in providing hours of bus service. 2/ The increasing returns arise solely from passenger time effects. Nash, on the other hand, examines economies of scale "with respect to vehicle size" (my italics) and concludes that they are obvious. 3/ Nash explicitly rejects the argument that one might operate smaller vehicles: "if traffic were less dense, the cost savings would probably not be large enough to affect the results significantly." Thus both Nash and Mohring assume away the traditional issues about size of firm and economies of scale and suppose that the only limit to the size of bus is due to technological or safety constraints; otherwise, the bigger the bus, the better. And both consider a monopoly supplier of bus services at least for the route and probably for the city. 1.03 It is worthwhile stepping back a little from this monopoly and reflecting on the consequences of an alternative unregulated system of free enterprise provision of urban transport. This seems so far from experience, 1/ Mohring's development includes also a congestion effect in the additional passengers slowing up the bus and existing passengers, and creating system effects by the reduction of bus miles.

Load more

  57

Copy Link