Total factor productivity decomposition, input price inefficiencies, and public transit systems

This paper decomposes the rate of growth of total factor productivity (TFP) in public transit systems among input demand effects, an indirect output effect, an indirect technical change, pure scale effects and pure technical change. An application of the decomposition to selected transit systems is provided. The application shows that the effects of the changes in input price inefficiencies on TFP are sizeable, and that the total subsidy effects on TFP are larger than the total effects from utility maximization behavior. Furthermore, the traditional sources of TFP (i.e., pure scale and technical change) reduce TFP and the Divisia index overestimates TFP in public transit systems.