In an effort to reduce operating deficits, increase productivity, and improve the quality of
services, the public transit sector has been moving away from public ownership and
operation and towards a franchising arrangement whereby a local government authorizes a
private firm to manage and operate the city's public transit system. Profit maximization
considerations imply that private managers have stronger incentives for cost efficiency. One
such example is the city of Indianapolis which began privatization efforts in its transit …

Patrick McCarthy, Purdue University1 Abstract: In an effortto reduceoperatingdeficits,
increaseproductivity, and improvethe quality of services, thepublic
transitsectorhasbeenmoving awayfrom public ownershipand operationtowardsa
franchisingarrangementwherebya local governmentauthorizesa privatefirm to manageand
operatethecity's public transitsystem. Profit maximization considerationsimply thatprivatemanagershavestrongerincentive…
cost efficiency than theircounterpartsin the public sector. One suchexampleis thecity of …