UC Irvine Institute of Transportation Studies

A review of the literature on the issue of the cost structure of bus transport shows that most studies use simplistic analytical constructs which do not allow for analysis of relationships between production cost on the one hand and output and input factor prices on the other. In particular, the demand for factors of production, factor substitution and price elasticities are not investigated. This study uses a two factors translog cost function model, which is subject to very few a priori economic restrictions, to investigate these issues. By using a data base which represents the Israeli bus sector, the empirical results provide a comprehensive description of the cost structure of the sector. These results include scale economies, fixed factor proportions-type production technology; non-linear separability of factors in cost function, and small own price elasticity of demand for labor relative to capital.