The impact of including service quality into efficiency analysis: The case of franchising regional rail passenger serves in Germany

Based on a 12 years panel data set for franchised regional rail services, this paper studies the impact of including service quality into an analysis of efficiency differences between the German public transport authorities (PTAs) in using their available public funds. The analysis employs a two-stage efficiency analysis with a Data Envelopment Analysis (DEA) in the first stage and a Tobit panel model in the second stage. Both a base model with conventional output variables and a model which includes additional indicators of service quality provide robust results regarding the factors which explain efficiency differences between PTAs. PTAs with a higher share of tendering, a higher share of gross contracts and longer and smaller contracts were more efficient than others, with the effect being even stronger when including quality of service indicators. A further finding is the change of PTA's ranking when including quality of service. Therefore, neglecting quality of service and restricting efficiency analysis to conventional output measures might result in misleading policies.