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

Abstract

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.

Bus Fleet Management – A Systematic Literature Review

“…Remanufacturing the engine or transmission had a similar target of extending the life of a bus for at least 4-10 years [94]; however, with a significant portion of expenses, more maintenance-intensive activities later on. In this regard, considering new technologies, one must consider the location of the manufacturer [95], mostly because it is associated with easy-to-access and service maintenance. The reason above is mostly associated with the fleet replacement policy.…”

The Effect of Fuel Price Changes on Fleet Demand for New Vehicle Fuel Economy

“…Li et al . [2015] found that U.S. bus purchases were insensitive to energy price changes because of federal ‘buy American’ programs and other regulations and tax incentives. In Figure , we plot the distribution of domestic and foreign light‐duty vehicles registered by buyer type from 2015 to 2016.…”

“…Federal regulations and subsidy incentives may discourage government buyers from responding to energy price changes (Li et al . [2015]). Governments may have specific vehicle uses and requirements that limit their choices, also causing government and commercial fleet buyers to be insensitive to fuel cost changes.…”

Efficient Local Government Service Provision: The Role of Privatization and Public Sector Unions

“…Managerial decisions on capital and fleet procurement are less frequent relative to operating input decisions of labor, maintenance, and fuel. While Li, Kahn and Nickelsburg (2015) study the durable bus investment decision and its implications on energy efficiency for transit agencies, we focus on the labor input decisions and productivity under the influence of labor union rules.…”

“…Diamond (2016) finds similar results in areas with inelastic housing supply. and the fuel needed to move the bus are traded on a national market (Kahn, Li and Nickelsburg 2015).…”