Expense preference behavior in public transit systems

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%. (C) 2000 Elsevier Science Ltd. All rights reserved.