Public Transit Bus Procurement: The Role of Energy Prices, Regulation and Federal Subsidies

• Published in: NBER Working Paper Series p. 19964
• Main Authors: Li, Shanjun, Kahn, Matthew E, Nickelsburg, Jerry
• Format: Paper
• Language: English
• Published: Cambridge National Bureau of Economic Research, Inc 01.03.2014
• Subjects: Air pollution; Automobiles; Brand loyalty; Buses; Economic theory; Emission standards; Energy efficiency; Energy prices; Gasoline prices; Hypotheses; Management decisions; Natural gas; Profits; Public transportation; Purchasing; Regulation; Subsidies; Transportation services; Vehicles
• DOI: 10.3386/w19964
• ISSN: 0898-2937

Working Paper No. 19964 The U.S. public transit system represents a multi-billion dollar industry that provides essential transit services to millions of urban residents. We study the market for new transit buses that features a set of non-profit transit agencies purchasing buses primarily from a few domestic bus makers. Unlike private vehicles, the fuel economy of public buses is irresponsive to fuel price changes. To understand this finding, we build a model of bus fleet management decisions of local transit agencies that yields testable hypotheses. Our empirical analysis of bus fleet turnover and capital investment suggests that transit agencies: (1) do not respond to energy prices in either their scrappage or purchase decisions; (2) respond to environmental regulations by scrapping diesel buses earlier and switch to natural gas buses; (3) prefer purchasing buses from manufacturers whose assembly plants are located in the same state; (4) exhibit significant brand loyalty or lock-in effects; (5) favor domestically produced buses when they have access to more federal funding.