Ownership structure and cost efficiency: A study of publicly owned passenger-bus transportation companies in India

This paper estimates the determinants of cost inefficiency of several publicly operated passenger-bus transportation companies in India in terms of their ownership structure as well as other firm-specific characteristics. A panel data on publicly operated passenger-bus transportation companies is used to estimate a translog cost system with inefficiency. Inefficiency is specified in such a way that both its mean and variance are firm- and time-specific. For the estimation of production technology and cost inefficiency we have used a multi-step estimation procedure instead of the single-step maximum likelihood (ML) method. In the first step we estimate the translog cost system with heteroskedastic cost function without using any distributional assumptions on the error terms. The second stage uses the ML method to estimate the parameters associated with inefficiency, conditional on the parameter estimates obtained from the first stage. Finally, the residual of the cost function is decomposed to obtain firm-and time-specific measures of cost inefficiency, with ownership type and other firm-specific characteristics as explanatory variables.