This paper extends previous works that view transit systems as minimizing t
heir after-subsidy costs. The paper uses the expense preference behavior mo
del in economics and derives first-order conditions for the manager. From t
he first-order conditions, the paper formally shows that the decomposition
of relative price inefficiency between management behavior and subsidies fo
und in the work of Sakano et al. (1997) can be derived from a utility maxim
izing model, thus placing that decomposition within the shadow price litera
ture. Extensions to the models to calculate expense preference are also pre
sented. The results of the estimated models show that transit systems have
expense preference for capital and not labor. This expense preference behav
ior increases total costs by about 15% and capital subsidies by about 20%.
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