ESTIMATING THE INEFFICIENCY IN THE NORWEGIAN BUS INDUSTRY FROM STOCHASTIC COST FRONTIER MODELS

A stochastic cost frontier function based on data from 170 of the 175 Norwegian subsidized bus companies is estimated under two alternative presumptions regarding the distribution of the inefficency among the b us operators. When the inefficiency is assumed to be half-normally dis tributed, the average inefficiency in the industry is estimated to be 13.7 per cent. This calculated value is nearly halved (7.2 per cent) w hen the exponential distribution is applied, while the ranking of the companies according to inefficiency is unchanged. By regressing the es timated inefficiency values for each company on some exogenous variabl es describing its ownership structure and the subsidy policy which it faces, it is seen that inefficiency of the companies which negotiate w ith the public authorities over the subsidy amounts is slightly higher than the inefficiency of the companies which face a subsidy policy ba sed on cost norms. Our analysis gives, however, no significant differe nces in the efficiency between privately owned bus companies and publi cly owned bus operators, and shows only minor economies of scale.