Cost structure and production technology in transit. An application to the Israeli bus transit sector

The objective of this study is to empirically analyze the cost structure and production technology, including the demand for input factors and cost elasticities of transit. To that end a four-input, two-output translogarithmic cost model is estimated. The estimated parameters are then used to explore various aspects of the production function as well as to measure scale economies with respect to each output. Following the description of the methodology, the cost model is applied to the Israeli bus transport sector which, in most relevant aspects, is very similar to these of other countries. Major conclusions from the empirical analysis are also presented.