In the face of escalating costs, declining productivity, and constraints on fund- ing for public transit, many governments have turned to transit privatization in an effort to improve cost efficiency. Privatization of bus services occurs in a range of forms and regulatory environments. Privatization proponents argue that publicly owned and subsidized transit operations are inefficient due to higher labor costs, restrictive work rules, and large bureaucracies. Critics of privatization argue that several market failures counteract these theorized benefits, resulting in under-insurance, substandard vehicle maintenance, and higher levels of pollution, congestion, and accident rates, among other inadequacies. This paper reviews the research and debates on privatization in the form of contracting, including its effects on cost-efficiency, quality of transit provision, and labor.
