Competition in Bus Public Transport in Israel

Abstract

Following the trend in many countries, competition in public transport in Israel was introduced in the late 1990s in various forms of competitive tendering. Competition by 2005 included more than 370 lines carrying more than 100 million passengers annually, representing some 15% of the market. Cost savings and significant fare reductions were the immediate results of most tenders. In most line clusters, competition resulted in an increase in level of service and ridership. An economic model is used to analyze and evaluate the benefits of the competitive process in public transport in Israel and examine its impact on the national economy. Results show that an increase in consumer surplus together with a long-term subsidy saving represent 7% of the total precompetition public transport cost. The subsidy saving alone is estimated to be 15% of the precompetition subsidy. The presented experience shows that all types of tenders advance the market to a more competitive environment. However, fare-based competitive tendering is closer to representing perfect competition conditions and maximizing welfare, whereas subsidy–royalty bidding results in subsidy savings. This finding shows the importance of setting the fare level in subsidy–royalty tenders so as to minimize deadweight loss.