Unconventional factors of efficiency in public transport. A case study and theory

In this paper we analyse some possible unconventional factors of efficiency in public transport. The occasion for such analysis rises from a case study in the southern Italian region of Sicily. Most of the regional bus service is here historically franchised to some local private bus companies, without tenders or any other form of competition. The structure of the network has never been planned ex-ante, as it is the result of negotiations among bus companies, local and regional authorities. Though this situation is obviously quite far from indications of the regulation theory, it results in a surprisingly efficient system, with very low unit costs. An analysis of this situation is here carried out in order to understand which factors are forcing those companies to be efficient and which problems this situation may generate. The quality and effectiveness of the offered service is also reckoned. Two factors seem to be most relevant to this results: the relatively low level of subsidies together with the fact of being private operators (rather an exception than a rule in Italy). In order to improve their efficiency, those companies also merged together but eventually split again in the last decades in order to reach a more efficient size and suggesting the presence of possible diseconomies of scale in the sector. Taking for granted that a form of regulation is needed, it is here suggested that regulatory strategies should adapt to this counterintuitive fact and not destroy the incentives already effective in the present situation. Our suggestion is to prefer medium sized tenders rather than large ones, not only for granting more contestability, but also for financial reasons.