Short and long-run cost efficiency in Indian public bus companies using Data Envelopment Analysis

• Published in: Socio-economic planning sciences 2018-03, Vol.61, p.29-36
• Main Authors: Venkatesh, Anand, Kushwaha, Shivam
• Format: Article
• Language: English
• Subjects: Bus transport; Capital; Cost efficiency; Data envelopment analysis; DEA; Developing countries; LDCs; Long-run; Operating costs; Public bus companies; Quasi-fixed input; Road transport; Short-run; Studies
• ISSN: 0038-0121; 1873-6041
• DOI: 10.1016/j.seps.2017.04.001

State Transport Undertakings (STUs) are key players in providing mass road transport in India. Given that they operate under high levels of government imposed regulatory constraints, it is imperative to study their efficiency levels. Given that capital is a relatively scarce resource in developing countries like India, it is important to obtain efficiency in the short-run where some inputs are fixed as well as over the long run, where all inputs are variable. The technique used for capturing efficiency is Data Envelopment Analysis (DEA). A key possible limitation of DEA models based on physical inputs and outputs is that for an inefficient firm, reduction in some or all inputs may be recommended. It may often be desirable for an inefficient firm to increase some less expensive inputs while reducing the use of relatively expensive ones. Hence, when market price data is available, it is advisable to use the cost variant of DEA. Also, it is possible to determine variable cost efficiency in the short run when some inputs cannot be varied. Such inputs are referred to as “quasi-fixed” inputs. In this paper, we examine short and long term efficiencies of select bus companies in India known as State Transport Undertakings (STUs) over a period of 10 years. Fleet strength has been used as the quasi-fixed input. It is possible to ascertain, through a comparison of shadow price of the quasi-fixed input, vis-à-vis its market price, as to whether the quantity of this input is sub-optimally small or large. It is found that by adopting efficiency enhancing practices, STUs can cumulatively reduce their operating costs to the extent of 9123.35 million dollars. Also the tendency to minimize costs is found to be declining over time. In the short run some STUs are found to operate with a sub optimally low fleet size. •Approach to model bus transport efficiency in developing countries.•Most bus companies in India not adopting cost-minimizing behavior.•Overstaffing in Indian bus companies.•Inefficiency losses in Indian bus companies is upto $9123.35 million.•Need to augment capital stock and fuel utilization.