This paper analyses the cost structure of a sample of Italian local public transport (LPT) companies operating in medium and large urban centres. The main focus is to identify the proper network configuration for the LPT service, by verifying the presence and the extent of scale and density economies. Technological characteristics of public transit systems are analysed by estimating both variable and total cost function models, which consider three alternative supply-oriented output measures and includes firm-specific fixed effects. The evidence is remarkably robust across the different specifications and shows the presence of short-run and long-run economies of scale, as well as of economies of network density, for both the average sample firm and for operators belonging to the highest percentile (large-sized companies). This suggests that, from a technological point of view, a proper LPT network design should at least include a large urban centre and should be extended so as to embrace the intercity service too, while a regulatory policy aimed at fragmenting the served area in various sub-networks would imply an efficiency loss.
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