Giovanni Fraquelli
(Università del Piemonte Orientale "Amedeo Avogadro", Ceris-CNR*, HERMES**)

Massimiliano Piacenza
(Università di Roma "La Sapienza", Ceris-CNR, Hermes)

Graziano Abrate
(Ceris-CNR, Hermes)

This study provides fresh evidence about the characteristics of technology and cost structure of public transit systems in Italy. The aim is to suggest useful guidelines for facing detected inefficiencies. The analysis is carried out through the estimation of a translog variable cost function. The sample includes 45 Italian public companies. Firms are observed in the years 1996, 1997 and 1998, and operate both in the urban and extra-urban compartments. Results support previous evidence on the existence of natural monopoly at local level and stress the importance of the average speed of vehicles in explaining cost differences between companies. We conclude that cost benefits can be achieved by promoting mergers between firms (whenever possible), introducing some forms of "competition-for-the-market" (e.g., competitive tendering for the single license) and taking more care of the local traffic regulation.