Cost Structure Changes in the Japanese Local Bus Sector in an Era of Deregulation: A Bayesian Gradual Switching Approach

This is the first study to use the Bayesian gradual switching regression model to investigate the cost structures of local bus operators. The model is able to endogenously identify the start- and end-points of the changes, which makes this model superior to models with dummy variables that assumeimmediate changes. The data from Japan cover 26 years from FY 1987 to FY 2012, including years of announcement (FY 1996) and enforcement (FY 2001) of the deregulation. The estimated start- and end-points of the changes demonstrate that the changes are due more to the cut ting of labour costs than to deregulation.