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

Source: Shanjun Li, Matthew E. Kahn, Jerry Nickelsburg, National Bureau of Economic Research (NBER), NBER Working Paper No. w19964, March 2014
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From the 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.