Key-Cost Drivers Selection in Local Public Bus Transport Services Through Machine Learning

Abstract

This paper is aimed at developing a workable model for the identification of key-cost drivers in the Italian Local Public Bus Transport (LPBT) sector. Disaggregated information about costs, technical characteristics and environmental characteristics have been collected by means of questionnaires sent to LPBT companies producing more than 500 million bus revenue kilometres in Italy in 2011. A supervised regression model is built by training a regularized Artificial Neural Network in order to determine the quantitative and qualitative characteristics that contribute to explaining the variability of the driving personnel and the unit cost of the fleet (which usually covers more than 50% of the total economic cost) and the remaining portion of the unit cost. The proposed models could be an effective and simple tool for local authorities to validate reserve prices in tender procedures. Keywords: standard costs, local public transport, fiscal federalism, cost drivers, machine learning. INTRODUCTIONIn Italy, the Local Public Transport (LPT) industry reform bill (1997) touched upon two dimensions: the allocation of public funds to Regions -and, in turns, to Local Authorities (LAs) -as well as the definition of an upper bound to public compensations to LPT firms. Although the reform bill stated that all subsidized LPT services should have been tendered off by January 2004, later legislative interventions left discretion to local governments about whether tendering out concessions or adopting in-house provision. Some competitive tendering took place after 1998 [1]. However, at present, the amount of LPT services that are tendered off is negligible with respect to in house provision that still prevails, especially in large cities [2]. In recent years, a number of policy interventions reaffirmed the political aim to improve market-oriented mechanisms in the allotment of LPT services; moreover, several parliamentary acts established that the maximum economic compensation to LPT firms should be based on standard costs (Law number 135/2012). The standard cost is defined as the cost of a LPT service provided by a reasonably efficient operator given a pre-specified level of service quality. However, at present, the Italian policy makers have not yet promulgated an appropriate methodology for the calculation of unit standard costs.Our paper contributes to the literature since we develop two Top-Down cost models, based on recent advancements of machine learning approaches [3], in order to identify key cost drivers with respect to different cost items. The proposed models could be an effective and simple tool for LAs to validate reserve prices in tender procedures. Detailed information about costs has been gathered in order to fairly compute the total economic costs of the LPBT services; the collected economic and transport data relates to LPBT companies producing more than 500 million of bus revenue kilometers (BRK) in Italy in 2011 (approximately 30% of the overall amount of BRK offered in Italy for bus LPT services).Thi...

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